Why is it in the news?
- The Reserve Bank of India (RBI) has imposed further restrictions on Paytm Payments Bank (PPB), a prominent player in India’s digital payments ecosystem.
More about the news
- PPB is prohibited from accepting fresh deposits in customer accounts, prepaid instruments, wallets, FASTags, etc., effective from February 29, 2024.
- RBI invoked its powers under section 35A of the Banking Regulation Act of 1949 to impose these restrictions.
- This action comes in response to persistent non-compliance observed by external auditors and significant supervisory concerns regarding PPB’s operations.
|About Payment Banks
· The concept of payment banks was introduced based on recommendations from the Nachiket Mor committee, which aimed to enhance financial inclusion in India.
· Payment banks operate under the purview of the Banking Regulation Act 1949 and are required to register as Public Limited Companies and obtain licenses from RBI.
· Payment banks are allowed to conduct most banking operations, such as accepting deposits, facilitating remittances, and offering payment services.
· However, they are restricted from engaging in lending activities or issuing credit cards.
Limitations and Challenges:
· One major limitation of payment banks is their inability to earn revenue through lending, which is a primary source of income for traditional banks.
· Moreover, the digital nature of their operations necessitates substantial investments in digital infrastructure, posing financial challenges.
· Payment banks face stiff competition from traditional banks that also offer mobile banking services, unified payment interfaces, and other digital solutions.