Introduction

The Reserve Bank of India (RBI) imposed additional curbs on Paytm Payments Bank Ltd (PPBL), prohibiting it from operating its mobile wallet after February.
This article provides insights into what payments banks are, their objectives, features, and the regulatory framework governing them.

Understanding Payments Banks

Definition: Payments banks are financial institutions similar to regular banks but operate on a smaller scale without engaging in credit risk.
Origin: The concept of payments banks was recommended by the Nachiket Mor Committee.
Objective: The primary goal is to advance financial inclusion by providing banking and financial services to unbanked and underbanked areas, catering to migrant laborers, low-income households, small entrepreneurs, and more.
Legal Framework: Payments banks are registered as public limited companies under the Companies Act 2013 and licensed under Section 22 of the Banking Regulation Act 1949.
Regulation: They are governed by various legislations, including the Banking Regulation Act, 1949; RBI Act, 1934; Foreign Exchange Management Act, 1999, among others.

Differentiation: Payments banks are distinct entities, not universal banks.
Scale: They operate on a smaller scale compared to traditional banks.
Capital Requirements: Payments banks are required to have a minimum paid-up equity capital of 100 crores.
Promoter Contribution: The promoter must contribute at least 40% of the paid-up equity capital for the first five years from the commencement of business.

Accept deposits up to Rs. 2,00,000.
Offer demand deposits in the form of savings and current accounts.
Invest deposits in secure government securities as Statutory Liquidity Ratio (SLR), accounting for 75% of the demand deposit balance.
Place the remaining 25% as time deposits with other scheduled commercial banks.
Provide remittance services, mobile payments/transfers/purchases, ATM/debit cards, net banking, and third-party fund transfers.
Act as a banking correspondent (BC) for other banks to offer credit and services beyond their capabilities.

Loans and Credit Cards: Payments banks cannot issue loans and credit cards.
Time and NRI Deposits: They are not authorized to accept time deposits or NRI deposits.
Non-Banking Subsidiaries: Payments banks cannot establish subsidiaries to engage in non-banking financial activities.