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New Banking Paradigm

ET Cases, 4 pages
AUTHOR(S) : Y. Bala Bharathi and Dr. Nagendra V. Chowdary

Case Preview

New Banking Paradigm


Expected Learning Outcomes

• Understand the need for Payment Banks
• Understand the concept and distinguishing (operational) characteristics of Payment Banks
• How Payment Banks contribute to financial inclusion with their unique model should be well understood



I. Indian Financial System, Indian Banking Structure and Gap Analysis

1. What do you understand by Indian financial system? What are its components?
2. What do you understand by Indian banking structure and what are its constituents?
3. What are the services provided by commercial or universal banks?
4. ....................

II. Payment Banks: Concept and Characteristics

1. What are Payment Banks and why are they being allowed to be setup?
2. What are the unique operational characteristics of Payment Banks?
3. The RBI has given its in-principle approval for 11 Payment Banks on February 19th 2015. List the 11 licensees. What is your analysis of these 11 new Payment Banks?
4. ..........

III. Payment Banks and Financial Inclusion

1. What is financial inclusion? Why is it important for India in general and Indian banking system in particular?
2. What is an informal economy and what is its importance for the Indian banking system?
3. ..................

Teaching Note Preview

New Banking Paradigm



Payment Bank is a new initiative from RBI that intends to bring in the ‘unbanked’ population (around 50% of the Indian population) into the mainstream Indian banking. As Payment Banks are touted to serve the purpose of financial inclusion with their distinctive characteristics, this case flyer, based on the accompanying article1, can be used to understand the concept and connotations of Payment Banks.

Case Positioning and Case Setting

This case flyer can be used either at Undergraduate or Post Graduate level to understand the need, importance and unique characteristics of Payment Banks

Preamble to the Case Flyer Analysis

Only 40-50% of Indians have accounts with financial institutions, according to the KPMG estimates. To service the remaining population, RBI has created two new banking categories, called small finance banks and Payment Banks. Payment Banks are meant for simple banking transactions. These banks will not be allowed to lend or accept term deposits. Customers cannot deposit more than 1 lakh in their account. As none of the banks are yet operational, it is very difficult to predict who would make the cut with their profitability and Unique Selling Proposition (USP). This case flyer is meant to provide the canvas of the Indian financial system, Indian banking system and discuss about the distinguishing characteristics of Payment Banks. Accordingly, this case flyer was orchestrated as shown in Exhibit (TN)-I.....................

Case Analysis

I. Indian Financial System, Indian Banking Structure and Gap Analysis

The purpose of first section was to introduce the participants/students to Indian financial system, its role in economic development and the need for Payment Banks has to be arrived after doing a reasonable gap analysis.

1. Indian Financial System and its Components

• The financial system refers to the process of flow of savings from individuals or householders who act as suppliers of funds to seekers of funds such as business houses and government [Exhibit (TN)-II].


• Financial system functions as an intermediary by channelling funds from areas of surplus to area of productive use. It promotes the process of capital formation as well as contributes to the acceleration of Indian economic development.

• Indian financial system Comprises of a set of financial institutions, financial markets, financial instruments and financial services, which facilitate the transfer of funds from savers to investors [Exhibit (TN)-III].



Exhibit (TN)-I: Suggested Classroom Orchestration

Exhibit (TN)-II: Financial System at a Glance

Exhibit (TN)-III: Components of Indian Financial System

Exhibit (TN)-IV: Indian Banking Structure

Exhibit (TN)-V: Comparison between Payment Banks and Commercial Banks

Exhibit (TN)-VI: List of New Payment Banks

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Product code: BFS-4-0001, BFS-4-0001A


This case flyer and the base article ("New Banking Paradigm' by Shinjini Kumar in The Economic Times, dated: August 26th 2015) are meant to introduce the participants/students to the concept, the need and important distinguishing characteristics of payment banks. Based on recommendations of Nachiket Mor (Mor) Committee (December 2013) and keeping in line with global trends, the Reserve Bank of India (RBI) granted 'in-principle' approval to 11 Payment Banks on February 19th 2015. Six out of these 11 licensees feature amongst India's largest business houses (Reliance, Airtel, Aditya Birla Nuvo, Tech Mahindra, Sun Pharmaceuticals and Cholamandalam Investment). Payment Banks differ from conventional banks as they are not allowed to lend to customers or issue credit cards. However, they can accept deposits of up to ₹1 lakh, offer CASA deposits, issue debit cards and offer internet banking. These banks were given 18 months to comply with all the conditions laid out by the RBI. How do these Payment Banks work? How would they benefit customers? How would these Payment Banks aid the Indian Financial System? How would be these banks' profitability affected because of the latent competition from universal banks?

Pedagogical Objectives

  • To have an overview of the Indian financial system and Indian banking structure to understand and fill the gaps in financing small businesses and low-income households
  • To understand the concept, need and important distinguishing characteristics of Payment Banks
  • To examine how Payment Banks can contribute to the financial inclusion and aid in bringing in the unbanked to the mainstream economy

Case Positioning and Setting

This case flyer can be used for both Undergraduate and Post Graduate level to understand the need and unique characteristics of Payment Banks

This Case Pack Includes:
- Abstract
- Case Flyer
- Analysis

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