India's first 'stripped down' bank

Indian consumers check their mobile telephones at a free Wi-Fi Internet zone in Mumbai on February 23, 2016. Image copyright Getty Images

Telecom company Airtel launched a pilot of India's first payment bank service on Thursday. The move comes two weeks after the Indian government decided to ban 86% of the currency in circulation in a bid to crack down on corruption.

The BBC's Suranjana Tewari explains how this new "stripped down" version of banking will work.

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What are payment banks?

Payments banks are a stripped down model conceptualised by India's central bank, the Reserve Bank of India.

They accept deposits of up to around $1450, and can offer both current and savings accounts.

Image copyright Getty Images
Image caption India is one of the fastest-growing mobile phone market

Using mobile phones, they allow for transfers and withdrawals, effectively a cheaper way of reaching rural citizens than building bank branches in every village.

They can issue ATM cards and debit cards but cannot issue loans or credit cards.

RBI governor Raghuram Rajan decided to introduce the new banks to diversify the sector and to integrate those who only use cash into the banking system.

Customers will be able to sign up with just their national ID card number.

In a country that is notoriously bureaucratic, the ease of getting an account and the opportunity to make completely cashless purchases is something new.

What is Airtel offering?

Airtel is piloting the banks in Rajasthan, a state with a large rural population, most of whom have little or no access to formal banking.

With 325 million subscribers, Airtel is India's largest telecom company. It already operates similar banking services in Africa.

Airtel's product is the first payments bank to go live in India and the company is promising a completely paperless operation.

It is offering 7.25% interest on savings accounts, significantly more than traditional banks which offer around 4%.

But, although it is allowed to, it has said it will not be issuing ATM or debit cards.

Instead, it will allow cash withdrawals at designated Airtel retail outlets and via transfers to other banks.

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