Payment Banks and Payment Systems Questions and Answers

Answer: C

Correct answer: RBI envisage payments banks to be “virtual” banks or branchless banks.

This is the false statement. The Reserve Bank was explicit that payments banks are not to be virtual or branchless: they must have a physical presence, with at least a quarter of their access points in unbanked rural centres. The other three are correct - NRI deposits are not permitted, credit cards may not be issued, and a payments bank may act as a business correspondent of another bank.

Answer: C

Correct answer: Credit Cards

A payments bank may offer savings and current accounts and issue debit and ATM cards, all of which operate on the customer’s own money. A credit card extends credit, and a payments bank may not lend in any form, so it is the one product on the list that is excluded.

Answer: C

Correct answer: Issuing credit cards

A payments bank may take deposits, issue ATM and debit cards, and remit money, but it may not extend credit in any form - and a credit card is a lending product. This follows directly from the model: the bank invests its deposits in government securities and bank deposits rather than lending them, so it has no credit book and no means of funding one.

Answer: D

Correct answer: 70 : 30

Jio Payments Bank is a joint venture in which Reliance Industries holds 70 per cent and the State Bank of India 30 per cent. The pairing is characteristic of the payments bank model: one partner supplies the distribution reach and the customer base, the other the banking experience and systems.

Answer: A

Correct answer: Section 8

NPCI is registered as a Section 8 company under the Companies Act 2013 - a not-for-profit company formed to promote an object of public utility, whose income may not be distributed to its members. It was originally incorporated under the corresponding Section 25 of the Companies Act 1956, and the reference changed when the new Act replaced the old, which is why both numbers appear in older material.

Answer: C

Correct answer: 40%

The promoter must hold at least 40 per cent of the paid-up equity capital for the first five years from commencement of business, after which the holding may be reduced on a prescribed schedule. The lock-in is there to keep the promoter committed through the years in which the bank is establishing itself.

Answer: B

Airtel Payment Bank. It is a joint venture between Bharti Airtel Ltd and Kotak Mahindra Bank Ltd. Kotak Bank holds 19.9 % stake in Airtel Payment Bank and Headquarters in New Delhi. Anubrata Biswas is MD and CEO of Airtel Payment Bank.

Answer: D

Correct answer: No lending power

A payments bank cannot lend at all, to anyone, in any amount. Its deposits go into government securities and balances with scheduled commercial banks, and its income comes from that investment and from fees on payments and distribution. This is the defining restriction of the licence, and it is why a payments bank may issue a debit card but never a credit card.

Answer: D

Correct answer: 6

Of the eleven granted in-principle approval, three surrendered and the remainder proceeded, giving six payments banks that actually commenced operations - Airtel, India Post, Fino, Jio, NSDL and Paytm. The attrition illustrates how demanding the economics of the model proved: no lending income, a capped deposit base, and a large investment in distribution.

Answer: D

CCIL plays the role of a central counterparty whereby, the contract between buyer and seller gets replaced by two new contracts - between CCIL and each of the two parties. This process is known as ‘Novation’. Through novation, the counterparty credit risk between the buyer and seller is eliminated with CCIL subsuming all counterparty and credit risks.