Context:
Recently, the Reserve Bank of India (RBI) has imposed strict restrictions on Paytm Payments Bank Ltd (PPBL). This move comes after an audit report highlighted persistent non-compliances and supervisory concerns within the bank.
Relevance:
GS III: Indian Economy
Dimensions of the Article:
- Key Restrictions Imposed on PPBL by RBI
- Payment Banks: Facilitating Financial Inclusion
Key Restrictions Imposed on PPBL by RBI
Regulatory Authority and Concerns:
- Section 35A of the Banking Regulation Act, 1949, grants RBI authority to issue directives for preventing detrimental operations of a banking entity.
- Concerns over dubious transactions involving substantial amounts between Paytm and its associated banking entity prompted RBI action.
Compliance Issues:
- PPBL had numerous non-compliant accounts without proper KYC verification.
- Instances of a single PAN being used for opening multiple accounts were identified.
- Transactions exceeding regulatory limits in minimum KYC prepaid instruments raised concerns about potential money laundering.
Enforced Restrictions:
Deposit Bar (Effective from February 29, 2024):
- PPBL is prohibited from accepting additional deposits, top-ups, or credit transactions.
- Applicable to prepaid instruments for FASTags and National Common Mobility Cards (NCMC) cards.
Service Limitations:
- Extends to Aadhaar Enabled Payment System, Immediate Payment Service, bill payments, and UPI transactions.
- All pipeline and nodal account transactions must be settled by March 29, with no further transactions allowed thereafter.
Closure of Nodal Accounts (Before February 29, 2024):
- PPBL directed to terminate nodal accounts of its parent company and Paytm Payments Services.
Payment Banks: Facilitating Financial Inclusion
Introduction and Purpose:
- Payment banks, introduced by RBI in 2014, aim to promote financial inclusion by providing basic banking services to the unbanked and underbanked.
- Recommendation from the Nachiket Mor committee influenced their establishment.
Examples:
- Airtel Payments Bank, India Post Payments Bank, among others.
Licensing and Regulation:
- Licensed under Section 22 (1) of the Banking Regulation Act, 1949.
- Falls under the differentiated bank license category, with restrictions on offering the full range of services provided by commercial banks.
Features:
Reserve Requirements:
- Mandatory maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).
- At least 75% of demand deposit balances in SLR-eligible securities.
Minimum Paid-up Capital:
- Minimum paid-up equity capital set at Rs 100 crore.
- Promoter’s initial contribution to paid-up equity capital should be at least 40% for the first 5 years.
Prohibited Services:
- Prohibited from conducting lending operations or issuing credit cards.
- Exempt from priority sector lending regulations.
Rural Outreach Requirements:
- At least 25% of physical access points must be in rural centers.
Activities Performed:
- Accepting deposits from individuals and small businesses, up to a specified limit.
- Providing remittance services and facilitating domestic money transfers.
- Issuing ATM/debit cards, prepaid payment instruments, and other electronic payment methods.
- Offering internet banking services, including online fund transfers and bill payments.
-Source: The Hindu
