Payment Bank Controversy

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GS-3 Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.


A  PIL alleged that online payments platform Paytm was providing lending facilities in violation of the law regulating such activity.  Paytm Payments Bank Ltd's 'postpaid' service was operating contrary to the existing law and guidelines regulating such entities. It contended that RBI's guidelines for payments banks, like Paytm, do not permit credit or loan disbursement activities by such entities.

Seeking dismissal of the plea, the central bank claimed that the relief was sought against Paytm  RBI has been made the first party as a PIL would not lie against a private body and is indirectly attempting to misguide the court.

Paytm also refuted the claim saying that  Paytm postpaid facility, is being provided by Clix Finance India which is an NBFC and is in the business of providing loans/ credit facility.


In this regard let us understand the working of a Payments Bank: 

How is a payments bank different from a commercial bank?

  • The main objective of a payment bank is to further financial inclusion by providing small savings accounts and payments/remittance services to migrant labour workforce, low-income households, small businesses and other unorganised sector entities.
  • There are two kinds of banking licences that are granted by the Reserve Bank of India – universal bank licence and differentiated bank licence.
  • Payments bank comes under a differentiated bank licence since it cannot offer all the services that a commercial bank offers.
  • In particular, a payments bank cannot lend.
  • It can take deposits up to Rs.1 lakh per account and it can issue debit cards but not credit cards.
  • Commercial banks in India like State Bank of India or ICICI Bank, do not have any such restrictions.

What other functions payments bank can undertake?

  • A payments bank can work as a business correspondent (BC) of another bank.
  • They can also distribute simple financial products like mutual fund units and insurance products.

How many payments banks have commenced operations?

  • Out of the 11 entities that received in-principle licence for opening payments bank, 7 entities received the final licence.
  • Four payments banks have started operations — Airtel Payments Bank, India Post Payments Bank, Paytm Payments Bank and Fino Payments Bank.
  • RBI has mandated the minimum paid-up equity capital for payments bank at Rs.100 crore.

Where can a payments bank deploy its deposits?

  • Apart from maintaining Cash Reserve Ratio (CRR), these entities have to invest a minimum 75% of demand deposit balances in Statutory Liquidity Ratio (SLR)-eligible government securities or treasury bills.
  • The bills have to be with a maturity of up to one year and hold a maximum of 25% in current and time/fixed deposits with other commercial banks for operational purposes and liquidity management.

Who all are eligible to set up a payments bank?

  • RBI permits non-bank Prepaid Payment Instrument (PPI) issuers, individuals and professionals, non-banking finance companies (NBFCs), corporate business correspondents (BCs) etc. to apply for a payments bank licence.
  • Setting up of a joint venture by a promoter with an existing commercial bank is also allowed.
  • A promoter cannot apply for a payments bank licence now. However, RBI has said it intends to use the learning from the current licencing round to appropriately revise the guidelines and move to give licences more regularly, that is, virtually “on tap”.

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