Much of the Indian population is still outside the purview of formal financial sector and there is need to spruce up the institutional mechanism in this regard. Reserve Bank had, accordingly, issued draft guidelines on small banks and payment banks in June 2014. Both, payments banks and small banks are “niche” or “differentiated” banks; with the common objective of furthering financial inclusion.
While small banks will provide a whole suite of basic banking products, such as, deposits and supply of credit, but in limited size, payments banks will provide limited range of products, such as, acceptance of demand deposits and remittances of funds, but will have a widespread network of access points particularly in remote areas, either through their own branch network or through Business Correspondents or through networks provided by others.