Context:
The Reserve Bank of India (RBI) has cancelled the banking licence of Paytm Payments Bank under the Banking Regulation Act, 1949 due to persistent non-compliance with regulatory conditions. The move highlights stricter enforcement in the payments banking sector.
- Payments Banks are a special category of banks introduced on the recommendation of the Nachiket Mor Committee to promote financial inclusion, especially in rural and underserved areas.
- They are licensed under Section 22 of the Banking Regulation Act, 1949 and regulated by the RBI.
- Their primary objective is to provide basic banking services such as deposits, remittances, and digital payments to low-income groups and small businesses.
- Payments Banks can accept demand deposits up to a specified limit (currently ₹2 lakh per customer).
- They cannot lend money or issue credit cards, as they are not allowed to undertake credit risk.
- They can offer services like ATM/debit cards, mobile payments, fund transfers, and remittance facilities.
- A key prudential requirement is that at least 75% of their deposit balances must be invested in safe government securities with short maturity.
- The remaining funds are maintained with scheduled commercial banks for liquidity and operational purposes.
- Payment Banks must maintain a Cash Reserve Ratio (CRR) with RBI and at least 75% of their demand deposit balances must be invested in SLR-eligible Government Securities or Treasury Bills to ensure safety.
- Eligible promoters include individuals, NBFCs, telecom companies, and other entities, subject to RBI guidelines.
- They are governed by multiple laws including the RBI Act, 1934, Banking Regulation Act, 1949, FEMA, 1999, and Payment and Settlement Systems Act, 2007.
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Payments Bank Regulation: RBI Cancels Licence