Payments Bank

Payments Bank

Context: The Reserve Bank of India recently placed additional restrictions on Paytm Payments Bank Ltd (PPBL) due to non-compliances of its directives.

What are the directives issued?
• They cannot take fresh deposits and credit transactions across its services after 29 February.
• They will not be allowed credit transactions, including via wallets.

What are Payments Bank?
• Payments Banks are a new type of financial institution in India, introduced in 2014, to provide basic banking services to people who are currently unbanked or underbanked.
• They are registered under the Companies Act of 2013 but supervised by the Banking Regulation Act of 1949, RBI Act of 1934, Foreign Exchange Management Act of 1999, Payment and Settlement Systems Act of 2007, and others.
• They were setup based on recommendations of Nachiket Mor Committee.

Salient features:
• They are differentiated, and not universal banks and they 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.
• It can take deposits up to Rs. 2,00,000. It can accept demand deposits in the form of savings and current accounts.
• They can support financial transactions such as money transfers, insurance services, and the marketing of mutual funds.
• They can only provide ATM/debit cards, excluding the option of issuing credit cards.
• It cannot also lend.
• It cannot accept time deposits or NRI deposits.
• It cannot set up subsidiaries to undertake non-banking financial activities.

What are the implications of actions taken by the RBI against Paytm Payments Bank?
• Financial impact: The RBI’s action could have an impact of up to Rs 300-500 crore on Paytm’s annual earnings before interest, tax, depreciation, and amortization.
• Disruption of services: The RBI’s directive halts Paytm Payments Bank’s basic banking functions, affecting transactions through UPI, IMPS, and Aadhaar-enabled payments.
• Reputational Impact: The repercussions may include reputational challenges for Paytm, heightened scrutiny on regulatory adherence, and potential implications for customer confidence.
• Industry Impact: The RBI’s actions have wider implications for the fintech industry, with brokerage firms being skeptical about Paytm’s future due to regulatory concerns