Payment Banks

News: The Reserve Bank of India (RBI) recently revoked the banking licence of Paytm Payments Bank Limited, bringing its operations as a bank to an end from April 24. 

About Payment Banks

• Formation: Payment Banks in India were established in 2014 based on the recommendations of the Nachiket Mor Committee. 
  • It was set up to operate on a smaller scale with minimal credit risk.
• Objective: The main objective is to advance financial inclusion by offering banking and financial services to the unbanked and under-banked areas.
• Legal Provisions: The legal provisions governing the payment banking operations in India are mentioned below:
  • These banks have to register as a Public Limited Company under the Companies Act 2013 and obtain a licence as per the Banking Regulation Act 1949. 
  • Regulated by: They are also regulated by the RBI Act 1934, Foreign Exchange Management Act 1999 and Payment and Settlement Systems Act, 2007.
  • The minimum capital requirement is 100 crores. 
• Features:
  • Type of Accounts: The payment bank can open only Savings Bank Accounts and Current Accounts.
  • The maximum balance of deposit they can have in their account is only Rs. 2,00,000 (Earlier it was only Rs. 1,00,000).
  • However, these cannot accept deposits from Non-resident Indians.
  • Lack of lending power: These are not allowed to lend money or provide lending services.
    • They are allowed to issue ATM or Debit cards, but are not allowed to issue credit cards.
  • CRR Requirement: Payment banks have to deposit the Cash Reserve Ratio (CRR) with the RBI, just like other commercial banks.
• Payment Banks operating in India: Now, only 5 such banks are operating in the country- Airtel Payments Bank Limited, India Post Payments Bank Limited, Fino Payments Bank Limited, NSDL Payments Bank Limited and Jio Payments Bank Limited.
• Reasons behind the cancellation of the license of PayTm payment bank: 
  • The Reserve Bank of India (RBI) has cancelled the banking licence issued to Paytm Payments Bank Limited under Section 22(4) of the Banking Regulation Act, 1949 (‘BR Act’), effective from the close of business on April 24, 2026.
  • Paytm Payments Bank is now prohibited from conducting the business of ‘banking’ as defined in Section 5(b) or any additional business specified under Section 6 of the BR Act, 1949 with immediate effect.
  • Section 22 (3) (b) of the BR Act: In its order, the RBI stated that the bank’s operations were conducted in a manner detrimental to both its own interests and those of its depositors, resulting in non-compliance with Section 22 (3) (b) of the BR Act.
  • Section 22 (3) (c) of the BR Act: The overall conduct of the bank’s management was found to be against the interests of depositors and the public, leading to a violation of Section 22 (3) (c) of the BR Act.
  • Section 22 (3) (e) of the BR Act: As per Section 22 (3) (e) of the BR Act, permitting the bank to continue its operations would not serve any meaningful purpose or public interest.
  • Section 22 (3) (g) of the BR Act: The bank failed to satisfy the conditions specified under its Payments Bank licence, thereby breaching Section 22 (3) (g) of the BR Act.