What is a Payments Bank?

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What is a Payments Bank? Blog Image

Overview:

The Reserve Bank of India (RBI) recently imposed restrictions on Paytm Payments Bank Ltd (PPBL), following a system audit report and subsequent compliance validation report of external auditors.

About Payments Bank

  • 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.
  • It is registeredas 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 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.

Q1) What is Statutory Liquidity Ratio (SLR)?

Statutory Liquidity Ratio or SLR is a minimum percentage of deposits that a commercial bank has to maintain in the form of liquid cash, gold or other securities. It is basically the reserve requirement that banks are expected to keep before offering credit to customers. These are not reserved with the Reserve Bank of India (RBI), but with banks themselves. The SLR is fixed by the RBI. 

Source: RBI bars Paytm Payments Bank from accepting deposits in any customer account from next month