Economics · Banking System & Regulatory Framework

Payments Banks represent a unique category of differentiated banks in the Indian banking structure, aimed at furthering financial inclusion by providing small savings accounts and payments/remittance services. Unlike universal banks, they are restricted in their activities to ensure they do not take on significant credit risk, making them safer for small depositors. They leverage technology and a vast network of access points, including business correspondents and mobile platforms, to reach the unbanked population. The regulatory framework for Payments Banks is designed to maintain high liquidity and ensure that the funds of depositors are invested in safe, highly liquid assets. Over the years, these banks have become integral to the digital payments ecosystem in India, facilitating millions of transactions daily. However, their inability to lend directly remains a challenge for their long-term profitability and business model sustainability. Statement I: Payments Banks are authorized to accept demand deposits (savings and current) from individuals and small businesses, with the maximum balance currently capped at 2,00,000 per individual customer at the end of the day. Statement II: A Payments Bank is strictly prohibited from undertaking any lending activities or issuing credit cards, although it can act as a distributor for third-party products like mutual funds and insurance. Statement III: Payments Banks are required to maintain a Cash Reserve Ratio (CRR) with the RBI, but they are exempt from the Statutory Liquidity Ratio (SLR) requirements because they do not lend. Statement IV: At least 75 percent of the demand deposit balances of a Payments Bank must be invested in Government Securities or Treasury Bills with a maturity of up to one year to ensure high liquidity. Statement V: The minimum paid-up equity capital for a Payments Bank is 100 Crore, and the promoter must contribute at least 40 percent of the capital for the first five years of operation. Which of the following statements are correct based on the summary and the regulatory framework for Payments Banks?