Payment Banks and Payment Systems Questions and Answers

Answer: A

Correct answer: 22

Payments banks are licensed under Section 22 of the Banking Regulation Act 1949, the same provision under which every bank in India is licensed. They are a differentiated category created by the licensing conditions attached, not by any separate statute - which is why they are banks in law and subject to the Reserve Bank’s full supervisory authority.

Answer: C

Correct answer: Credit card

A payments bank may issue ATM and debit cards, which draw on the customer’s own balance, but not a credit card, which extends credit. The prohibition follows from the licence condition that a payments bank may not lend at all, and it is the practical difference a customer notices between a payments bank and an ordinary one.

Answer: C

Correct answer: Nachiket Mor

The external advisory committee that evaluated the payments bank licence applications was chaired by Nachiket Mor, then a member of the Reserve Bank’s central board - the same person whose committee had proposed the differentiated licence in the first place. The committee screened 41 applications and recommended the eleven that received in-principle approval in August 2015.

Answer: A

Correct answer: 25%

Up to 25 per cent of demand deposits may be held in current and time deposits with scheduled commercial banks, for operational purposes and liquidity management. With at least 75 per cent required in short-dated government securities, the two together exhaust the deposit base entirely.

Answer: C

There are 10 core promoter banks of NPCI- State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank N. A. and HSBC. In 2016 the shareholding was broad-based to 56 member banks to include more banks representing all sectors.

Answer: D

Correct answer: 10 %

Any shareholder’s voting rights are capped at 10 per cent of the total, whatever the size of the shareholding, and the Reserve Bank may raise that cap to 26 per cent. The provision separates control from ownership and prevents a single shareholder dominating a bank through a large stake alone.

Answer: C

Correct answer: 25 %

At least a quarter of a payments bank’s access points, including business correspondents, must be in unbanked rural centres. Without such an obligation the outlets would concentrate where they are most profitable, and the financial inclusion purpose that justified creating the category in the first place would not be served.

Answer: B

Correct answer: 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.

Note that the cap is on the balance held, not on the value that may pass through the account: a customer may receive and spend far more than Rs 2 lakh in a year provided the end-of-day balance stays within the limit.

Answer: B

Correct answer: Nachiket Mor Committee

The Committee on Comprehensive Financial Services for Small Businesses and Low Income Households, chaired by Nachiket Mor and reporting in 2014, proposed the payments bank as a differentiated licence to extend payments and small savings to the unbanked. Nachiket Mor also chaired the external advisory committee that later assessed the licence applications.

Answer: C

- The Payments Bank will be set up as a differentiated bank and shall confine its activities to acceptance of demand deposits, remittance services, Internet banking and other specified services.
- Payments Banks will initially be restricted to holding a maximum balance of Rs. 1 lakh per individual customer.
- They will be allowed to issue ATM/debit cards as also other prepaid payment instruments, but not the credit cards.
- These banks can also distribute non-risk sharing simple financial products like mutual funds and insurance products.
- They will not be allowed to undertake lending services and non resident Indians will not be allowed to open accounts.