Payment Banks and Payment Systems Questions and Answers

Answer: A

Correct answer: Rs 100 crore

The minimum paid-up equity capital for a payments bank is Rs 100 crore, against Rs 500 crore for a universal bank. The lower figure reflects the far lower risk the model carries - there is no credit book, and the assets are government securities and bank balances - and it is what makes the licence accessible to telecom companies and payment operators.

Answer: D

Correct answer: All of the above

Three of the eleven surrendered their in-principle approvals before commencing business: Cholamandalam Distribution Services, the Dilip Shanghvi group associated with Sun Pharmaceuticals, and Tech Mahindra. Each concluded that the economics did not work - no lending income, a capped deposit base, and a heavy investment in distribution before any return.

Answer: A

The highest balance a bank can hold per customer is Rs 1 lakh, against the Mor panel’s recommendation of Rs 50,000.
- While payment banks won’t have to have a quarter of their branches in un-banked rural areas (as applicable for existing banks), they should have at least 25 per cent of their access points in such areas.
- The minimum paid-up capital required for both categories would be Rs 100 crore, of which the promoter would have to contribute at least 40 percent initially, with a five-year lock-in period.
- They would also have to maintain a capital adequacy ratio of 15 percent, though under Basel-I norms.
- If promoter shareholding exceeds 40 percent, it has to be cut to this level within three years of operations, 30 percent within 10 years and 26 percent within 13 years.

Answer: C

Correct answer: 18 Months

The in-principle approvals granted in August 2015 were valid for eighteen months, within which each entity had to comply with the licensing conditions and satisfy the Reserve Bank in order to receive a final licence. Three of the eleven surrendered their approvals within that window rather than proceed.

Answer: A

Correct answer: 25%

At least 25 per cent of a payments bank’s access points, including business correspondents, must be in unbanked rural centres. The requirement is central to the purpose of the licence: the bank exists to extend payments and small savings to people the branch network does not reach, and without the obligation the access points would concentrate in cities.

Answer: D

Correct answer: 75%

At least 75 per cent of demand deposits must be held in Statutory Liquidity Ratio-eligible government securities or treasury bills of maturity up to one year. The short maturity limits interest rate risk, and the requirement together with the 25 per cent that may sit with scheduled commercial banks accounts for the whole of the deposit base - which is precisely why no lending is possible.

Answer: A

Correct answer: Rs 2 lakh

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 cap applies to the end-of-day balance per individual customer. A payments bank must monitor it and, where it is breached, either sweep the excess into a linked account at a partner bank or decline further credits - which is one of the standard uses of the tie-up with a scheduled commercial bank.

Answer: A

Correct answer: 100 Cr

Rs 100 crore is the minimum paid-up equity capital for a payments bank, one fifth of the Rs 500 crore required of a universal bank. The reduced figure reflects the model’s much lower risk - no credit exposure at all, and assets confined to short-dated government securities and bank balances.

Answer: C

Correct answer: 40%

The promoter must contribute at least 40 per cent of the paid-up equity capital and hold it for five years from commencement of business, after which it may be brought down on a prescribed schedule - to 30 per cent within ten years and 15 per cent within twelve. The lock-in ensures the promoter carries the risk through the establishment period.

Answer: D

Correct answer: All

All four statements are correct. A payments bank may not lend and must invest at least 75 per cent of demand deposits in short-dated government securities; its purpose is remittances and simple financial products; the minimum paid-up capital is Rs 100 crore; and it may accept deposits up to Rs 2 lakh per customer, the limit having been raised from Rs 1 lakh in April 2021.