RBI’s Action Against Paytm Payments Bank

Context:

The Reserve Bank of India barred Paytm Payments Bank ltd. from offering all its core services from March 2024.

Core services: Paytm Payments Bank has been barred from offering its key services i.e. accepting deposits or top-ups in any customer account, prepaid instruments, wallets, FASTags, National Common Mobility Card etc after February 29.

Audit report: The Comprehensive System Audit report and subsequent compliance validation report of the external auditors revealed “persistent non-compliances and continued material supervisory concerns in the bank”.
Violating RBI directive: The RBI had earlier directed PPBL to stop onboarding new customers with immediate effect but the bank circumvented the directive to onboard customers through an offline mode.
Data security: Lack of requisite information barriers within the group, and data access to China-based entities that were indirect shareholders in the payments bank through their stake in the parent company.
Violating the Payments Banks Terms: Paytm Payments Bank had allegedly failed to meet the Rs 100-crore net worth criteria, and had exceeded the Rs 1-lakh deposit limit allowed per account for payments banks at the time.

A payments bank is a bank which operates on a smaller scale without involving any credit risk.
- For Example: Airtel Payment Bank, India Post Payment Bank, Fino, Paytm Payment Bank, NSDL Payment Bank and Jio Payment Bank.
Origin: Based on the recommendations of the Nachiket Mor Committee 2013
Registration: It is registered under the The Companies Act 2013
Governed By: Banking Regulation Act, 1949; RBI Act, 1934; Foreign Exchange Management Act, 1999, Payment and Settlement Systems Act, 2007 and the like.
Objective: To advance financial inclusion by spreading the payment and financial services network to small business, low-income households, migrant labor workforce in a secured technology-driven environment.
Function: A Payments Bank can accept demand deposits (up to Rs 1 lakh), offer remittance services, mobile payments/transfers/purchases and other banking services like ATM/debit cards, net banking and third party fund transfers.
Differentiated Bank: A Payment Bank cant perform some functions, these are
- They cannot advance loans or issue credit cards
- Payment Banks cannot accept Non-Resident Indian (NRI) deposits.
- It cannot accept Time deposits
- The Payment Banks cannot set up subsidiaries to undertake non-banking financial services activities.

Feature	Payment bank	Commercial bank
Deposits	Maximum limit is set up to Rs 1 lakh	No restrictions.
Minimum capital:	A minimum capital of Rs 100 crore, with promoters contributing at least 40% of the capital.	Commercial banks, meanwhile, need to have Rs 500 crore as its paid-up voting equity capital.
Minimum balance:.	They are zero balance accounts there is no minimum balance required	Many commercial banks require you to have a minimum balance in your account. Failure to do so may result in a penalty
Loans and credit:	A payments bank is not allowed to give any form of loan or issue a credit card, which is also a form of unsecured personal loan.	No such Restrictions
Government securities	75% of the total Demand Deposits needs to be invested in Government Securities	Maximum 22% needs to invest in Government securities

Also Read: RBI’s Guidelines On State Guarantees

News Source: The Indian Express

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