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Payment Banks
Definition: Payment banks operate on a smaller scale compared to traditional banks, focusing on basic banking services without the risk of credit.
Services Offered:
- Accept demand deposits (savings and current accounts) up to Rs 100,000 per customer.
- Issue ATM/debit cards, but not credit cards.
- Offer payments and remittance services.
- Distribute non-risk financial products like mutual funds and insurance.
- Invest customer deposits in government securities only.
Restrictions:
- Cannot issue loans or credit cards.
- No subsidiaries for non-banking financial activities.
- Cannot accept NRI deposits.
- Investment is limited to government securities and certain bank deposits.
Promotion and Regulation:
- Recommended by Dr. Nachiket Mor’s committee for serving lower-income groups and small businesses.
- Eligible promoters include existing PPI issuers, NBFCs, mobile companies, supermarket chains, and more, primarily resident-owned.
- Can be a joint venture with scheduled commercial banks.
- Governed by the Companies Act, 2013, Banking Regulation Act, 1949, and other relevant laws.
- Must maintain a Cash Reserve Ratio (CRR) and invest in SLR-eligible securities.
Financial Requirements:
- Minimum paid-up capital: Rs 100 crore.
- Promoter’s minimum initial contribution: 40% for the first five years.
- Foreign shareholding as per FDI policy for private sector banks.
Key Points of Recent RBI Action against Paytm Payment Bank:
- RBI’s Directive:
- Service Restrictions: Includes fund transfers, UPI facility, and termination of nodal accounts of One97 Communications and Paytm Payments Services by Feb 29, 2024.
- Customer Withdrawals: Customers can use or withdraw their stored balances in Paytm accounts up to their available balance.
- Possible Causes for RBI Action:
- Concerns over KYC compliance, IT issues, and data access to China-based entities. Previous scrutiny since 2018 for regulatory compliance issues.
- Paytm’s Chinese investments, particularly from Antfin (Alibaba affiliate), are under intense regulatory scrutiny.
- Compliance Issues: Concerns over user acquisition processes, KYC norms, and maintaining arm’s length distance from promoter group entities.
- Financial Criteria Concerns: Allegations of not meeting the Rs 100-crore net worth criteria and exceeding the Rs 1-lakh deposit limit per account for payments banks.
Why in News:
- Paytm Payments Bank barred from key services like accepting new deposits, offering prepaid instruments, wallets, FASTags, etc., effective after February 29, 2024.
