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What are Payment Banks? - UPSC Economy
What is What are Payment Banks? in UPSC Economy?
What are Payment Banks? is a key topic under Economy for UPSC Civil Services Examination. Key points include: Payment Banks are specialized banks introduced by RBI in 2014 to promote financial inclusion.. They were established based on the recommendations of the Nachiket Mor committee.. Licensed under Section 22 (1) of the Banking Regulation Act, 1949, as differentiated banks with restricted services.. Understanding this topic is essential for both UPSC Prelims and Mains preparation.
Why is What are Payment Banks? important for UPSC exam?
What are Payment Banks? is a Medium-level topic in UPSC Economy. It is tested in both Prelims (factual MCQs) and Mains (analytical answer writing). Previous year UPSC questions have frequently covered aspects of What are Payment Banks?, making it essential for comprehensive IAS preparation.
How to prepare What are Payment Banks? for UPSC?
To prepare What are Payment Banks? for UPSC: (1) Study the comprehensive notes covering all key concepts on Vaidra. (2) Practice previous year questions on this topic. (3) Connect it with current affairs using daily updates. (4) Revise using key takeaways and mind maps available for Economy. (5) Write practice answers linking What are Payment Banks? to related GS Paper topics.
Key takeaways of What are Payment Banks? for UPSC
- Payment Banks are specialized banks introduced by RBI in 2014 to promote financial inclusion.
- They were established based on the recommendations of the Nachiket Mor committee.
- Licensed under Section 22 (1) of the Banking Regulation Act, 1949, as differentiated banks with restricted services.
- Required to maintain CRR and SLR; 75% of demand deposits in G-secs/T-bills (up to 1 year), 25% in other scheduled commercial banks.
- Minimum paid-up equity capital is ₹100 crore; promoter's initial contribution is 40% for the first 5 years.
- They cannot undertake lending activities, issue credit cards, or accept large deposits (currently capped at ₹2 lakh per customer).
- Primary focus is on deposits, remittances, and payment services, often leveraging digital platforms.
What are Payment Banks?
Medium⏱️ 7 min read
economy
📖 Introduction
Introduction to Payment Banks
Payment Banks are a specialized category of financial institutions introduced by the Reserve Bank of India (RBI) in 2014. They represent a unique model designed to expand banking services to a wider populace.
Their primary objective is to foster financial inclusion by providing basic banking facilities to the unbanked and underbanked segments of society, especially in remote and rural areas.
Origin and Recommendations
The establishment of Payment Banks was a direct outcome of the recommendations put forth by the Nachiket Mor committee. This committee was constituted by the RBI to comprehensively examine financial services for small businesses and low-income households.
The committee's insights highlighted the need for a differentiated banking approach to cater specifically to these underserved groups, leading to the creation of Payment Banks.
Licensing Framework
Payment Banks are officially licensed under Section 22 (1) of the Banking Regulation Act, 1949. This legal framework grants them the authority to operate within India's banking system.
They fall under the differentiated bank license category, which means they are restricted from offering the full spectrum of services provided by conventional commercial banks. The RBI grants two main types of banking licenses: universal bank licenses and differentiated bank licenses.
Understanding the 'differentiated' nature is crucial for UPSC. It implies a focused mandate and specific operational limitations compared to universal banks.
Key Features: Reserve Requirements
Like other banks, Payment Banks are mandated to adhere to certain reserve requirements to ensure financial stability and liquidity. They are required to maintain both the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR).
- SLR Investment: A minimum of 75% of their demand deposit balances must be invested in Statutory Liquidity Ratio (SLR) eligible G-securities/T-bills with a maturity period of up to one year.
- Other Deposits: A maximum of 25% of their demand deposit balances can be held in current and time/fixed deposits with other scheduled commercial banks, in addition to maintaining their CRR requirements.
Key Features: Capital Requirements
To ensure a robust financial foundation, specific capital requirements have been stipulated for Payment Banks.
- Minimum Paid-up Capital: The minimum required paid-up equity capital for a Payment Bank has been fixed at ₹100 crore.
- Promoter's Contribution: The promoter's minimum initial contribution to the paid-up equity capital must be at least 40%, and this contribution needs to be maintained for the first 5 years of the bank's operations.
💡 Key Takeaways
- •Payment Banks are specialized banks introduced by RBI in 2014 to promote financial inclusion.
- •They were established based on the recommendations of the Nachiket Mor committee.
- •Licensed under Section 22 (1) of the Banking Regulation Act, 1949, as differentiated banks with restricted services.
- •Required to maintain CRR and SLR; 75% of demand deposits in G-secs/T-bills (up to 1 year), 25% in other scheduled commercial banks.
- •Minimum paid-up equity capital is ₹100 crore; promoter's initial contribution is 40% for the first 5 years.
- •They cannot undertake lending activities, issue credit cards, or accept large deposits (currently capped at ₹2 lakh per customer).
- •Primary focus is on deposits, remittances, and payment services, often leveraging digital platforms.
🧠 Memory Techniques
98% Verified Content
📚 Reference Sources
•Reserve Bank of India (RBI) website - Guidelines for Licensing of Payments Banks
•Reports of the Nachiket Mor Committee (Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households)