Find the answers and detailed explanations at the end of the post:

Q.1. The ‘Payment Banks’ set up by the Reserve Bank of India cannot provide which of the following services: (1) Loans; (2) Credit Cards; (3) Debit Cards; (4) Remittance Services; (5) Foreign Exchange cards; (6) Business Correspondent Services.

a. Only 1, 2 and 3

b. Only 1, 2, 5 and 6

c. Only 4, 5 and 6

d. Only 1 and 2

Q.2. Which of the following statements about ‘payment banks’ in India is/are true: (1) ‘Payment Banks’ in India have been set up as per the recommendations of the ‘Nachiket Mor’ committee; (2) The Cash Reserve Ratio/Statutory Liquidity Ratio regulations of Reserve Bank of India are not applicable on ‘payment banks’.

a. Only 1

b. Only 2

c. Both 1 and 2

d. Neither 1 nor 2

Answers and explanation-

Q. 1 – d. Only 1 and 2

Q. 2 – a. Only 1

Payments bank comes under a differentiated bank licence since it cannot offer all the services that a commercial bank offers. In particular, a payments bank cannot lend. It can take deposits upto Rs. 1 lakh per account and it can issue debit cards but not credit cards. A payments bank can work as a business correspondent (BC) of another bank. They can also distribute simple financial products like mutual fund units and insurance products. They can enable transfers and remittances through a mobile phone. They can also provide forex cards to travellers, usable again as a debit or ATM card all over India. Source: The Hindu and The Hindu. Also read: The Hindu’s report on PayTM.

On 23 September 2013, Committee on Comprehensive Financial Services for Small Businesses and Low Income Households, headed by Nachiket Mor, was formed by the RBI. On 7 January 2014, the Nachiket Mor committee submitted its final report. Among its various recommendations, it recommended the formation of a new category of bank called payments bank. The payment banks, apart from maintaining Cash Reserve Ratio (CRR), have to invest a minimum 75% of demand deposit balances in Statutory Liquidity Ratio (SLR)-eligible government securities or treasury bills with maturity of up to one year and hold a maximum of 25% in current and time/fixed deposits with other commercial banks for operational purposes and liquidity management. Sources: Wikipedia and The Hindu.  Payment banks are allowed to outsource collection and verification of ‘know your customer’ (KYC) documents to a business correspondent. But the onus on deciding whether the account should be opened or not rests with the bank. Also read: The Hindu’s report on PayTM.