Payment Banks and Payment Systems Questions and Answers

Answer: C

Correct answer: Lending Money

Lending is the one activity a payments bank cannot undertake at all. It may accept deposits within the cap, make payments and remittances, pay utility bills, issue debit cards and distribute mutual funds and insurance as an agent. Every source of income it has therefore comes from investment returns and fees rather than from a spread on credit.

Answer: B

Correct answer: “Payments Bank”

Every payments bank must carry the words “Payments Bank” in its name, so that customers can see at once that it is a differentiated institution which cannot lend and whose deposits are capped. The requirement is a consumer protection measure, and it is why the names are uniformly of the form Airtel Payments Bank or India Post Payments Bank.

Answer: C

Correct answer: Rs 2,00,000

The limit was raised from Rs 1 lakh to Rs 2 lakh with effect from April 2021, so older material still quotes the earlier figure.

The figure is a per-customer cap on the end-of-day balance, not a per-account one, so a customer with both a savings and a current account at the same payments bank is limited to Rs 2 lakh across the two.

Answer: C

Correct answer: Reserve Bank of India

Section 4 of the Payment and Settlement Systems Act 2007 provides that no person other than the Reserve Bank may commence or operate a payment system except under an authorisation issued by the Reserve Bank. The National Payments Corporation of India operates UPI, IMPS and the rest under exactly such an authorisation; it derives its standing from the Reserve Bank rather than independently of it.

Answer: C

The payments bank cannot undertake lending activities. Apart from amounts maintained as Cash Reserve Ratio (CRR) with RBI on its outside demand and time liabilities, it will be required to invest minimum 75 per cent of its “demand deposit balances” in Government securities/Treasury Bills with maturity up to one year that are recognized by RBI as eligible securities for maintenance of Statutory Liquidity Ratio (SLR) and hold maximum 25 per cent in current and time / fixed deposits with other scheduled commercial banks for operational purposes and liquidity management.

Answer: A

Banking Regulation Act, 1949. The voting rights will be regulated by the Banking Regulation Act, 1949.. The banks will be licensed as payments banks under Section 22 of the Banking Regulation Act, 1949, and will be registered as public limited company under the Companies Act, 2013.

Answer: A

Correct answer: True

A payments bank may distribute simple financial products - mutual fund units, insurance policies and pension products - as an agent, earning fee income for doing so. This is one of the few revenue lines available to it, since it cannot lend, and it fits the purpose of the licence, which is to extend simple financial services to people the branch network does not reach.

Answer: C

Correct answer: Section 22

Section 22 of the Banking Regulation Act 1949 is the provision under which the Reserve Bank grants a licence to carry on banking business in India, and payments banks are licensed under it like any other bank. The restrictions that make them a differentiated category are imposed as conditions of that licence rather than by a separate section.

Answer: C

Correct answer: 26%

Voting rights are capped at 10 per cent of total voting rights, and the Reserve Bank may raise the cap to 26 per cent. The restriction limits the influence any one shareholder can exercise regardless of the size of the holding, and it applies to banks generally rather than to payments banks alone.

Answer: C

Correct answer: NEFT

NEFT is operated by the Reserve Bank of India itself, as is RTGS; both are the central bank’s own settlement systems. NPCI operates the retail payment systems built alongside them - NACH for bulk mandates, BHIM and UPI for mobile payments, CTS for cheque truncation, together with IMPS, RuPay and AEPS.