PAYMENT
BANKS - ECONOMY
News:
Paytm Payments Bank
meltdown, its meaning | Explained
What's
in the news?
●
Reserve Bank of India has imposed
restrictions on Paytm Payments Bank and barred the entity from offering
incremental banking services effective March 2024, due to concerns regarding
breach of and compliance with regulatory norms.
Key
takeaways:
●
The Comprehensive System Audit report and
subsequent compliance validation report of the external auditors revealed
persistent non-compliances and continued material supervisory concerns in the
bank, warranting further supervisory action,” RBI said.
●
The regulator had, in March 2022, directed
Paytm Payments Bank to stop onboarding new customers and appoint an IT audit
firm to conduct a comprehensive System Audit.
Payment
Banks:
● A
payments bank is like any other bank but operates on a smaller scale without
involving any credit risk.
● It
was set up based on the recommendations
of the Nachiket Mor Committee.
Objective:
● To
advance financial inclusion by
offering banking and financial services to the unbanked and underbanked areas,
helping the migrant labour force, low-income households, small entrepreneurs,
etc.
Regulation:
● It
is registered as a public limited
company under the Companies Act 2013 and licensed under Section 22 of the Banking Regulation Act 1949.
● It
is governed by a host of legislation, such as the Banking Regulation Act, 1949;
RBI Act, 1934; Foreign Exchange Management Act, 1999, etc.
Features:
● They
are differentiated and not universal banks.
● These
operate on a smaller scale.
● The
minimum paid-up equity capital for
payments banks shall be Rs. 100 crores.
● The
minimum initial contribution of the promoter to the Payment Bank to the paid-up
equity capital shall be at least 40% for the first five years from the
commencement of its business.
Activities
that can be performed:
● It
can take deposits up to Rs. 2,00,000.
● It
can accept demand deposits in the
form of savings and current accounts.
● The
money received as deposits can be invested in secure government securities only
in the form of Statutory Liquidity Ratio
(SLR). This must amount to 75% of the demand deposit balance.
● The
remaining 25% is to be placed as time
deposits with other scheduled commercial banks.
● It
can offer remittance services, mobile
payments/transfers/purchases, and other banking services like ATM/debit cards,
net banking, and third-party fund transfers.
● It
can become a banking correspondent (BC)
of another bank for credit and other services which it cannot offer.
Activities
that can't be performed:
● It
cannot issue loans and credit cards.
● It
cannot accept time deposits or NRI
deposits.
● It
cannot set up subsidiaries to undertake
non-banking financial activities.