Context:

  • Recently the Reserve Bank of India (RBI) barred Paytm Payments Bank from offering all its core services which include accounts and wallets from March, effectively crippling the company’s business.
  • The action is technically not a cancellation of the licence of PaytmPayments Bank.
  • The action by the RBI actually constricts the company’s operations to a huge extent.
  • However it is important to note that the central bank has allowed the withdrawal or utilisation of balance amounts by customers without any restrictions (up to their available balance).
About the RBI direction: In the wake of persistent non-compliances and material supervisory concerns Paytm Payments Bank has been barred from offering almost all of its key services like:
  1. accepting deposits or top-ups in any customer account,
  2. prepaid instruments, wallets,
  3. FASTags, National Common Mobility Card (NCMC), etc.
  • RBI has also directed that the nodal accounts of the parent company One97 Communications and Paytm Payments Services should be terminated at the earliest but not later than February 29.
  • As per the direction issued by the Central bank, the settlement of all pipeline transactions and nodal accounts in respect of all transactions initiated on or before February 29 should be completed by March 15, and no transactions shall be permitted thereafter.
  • According to the RBI, withdrawal or utilisation of balances by customers from their Paytm accounts including savings bank accounts, current accounts, prepaid instruments, FASTags, NCMC, etc. are permitted without any restrictions but only up to their available balance.
  • However, the RBI statement, does not mention a number of other services including loans, mutual funds, bill payments, digital gold, and credit cards.

About Payment Banks:

  • A payments bank is similar to any other bank, but operating on a smaller scale without involving any credit risk.
  • It can carry out most banking operations but can’t advance loans or issue credit cards.
  • It can accept demand deposits (up to Rs 1 lakh), offer remittance services, mobile payments/transfers/purchases and other banking services like ATM/debit cards, net banking and third party fund transfers.
  • The main intent of payments bank is to widen the spread of payment and financial services to small business, low-income households, migrant labour workforce in secured technology-driven environment.
  • With the introduction of payments banks, RBI seeks to increase the penetration level of financial services to the remote corners of the country.