Question 79 from UPSC CSE 2016 - Economy

Question

The establishment of 'Payment Banks' is being allowed in India to promote financial inclusion. Which of the following statements is/are correct in this context?
1. Mobile telephone companies and supermarket chains that are owned and controlled by residents are eligible to be promoters of Payment Banks.
2. Payment Banks can issue both credit cards and debit cards.
3. Payment Banks cannot undertake lending activities.
Select the correct answer using the code given below.

Accepted Answer

Correct Option: B. 1 and 3 only

Strategy: Identify the core functionalities and restrictions of Payment Banks. Statement 3, asserting that 'Payment Banks cannot undertake lending activities,' is a fundamental characteristic. This immediately indicates that Statement 2, which claims they can issue 'credit cards' (a lending product), must be incorrect. Statement 1, regarding eligible promoters like mobile telephone companies and supermarket chains, aligns with known facts about entities that have launched Payment Banks.

Key Info: **Payment Banks**
- Payment Banks were established in India with the primary objective of furthering financial inclusion, especially for migrant labour, low-income households, small businesses, and other unorganised sector entities.
- The concept was recommended by the Nachiket Mor Committee (2014) and guidelines were issued by the Reserve Bank of India (RBI) in November 2014.

**Eligibility Criteria for Promoters**
- Entities such as mobile telephone companies, supermarket chains, Non-Banking Financial Companies (NBFCs), corporate Business Correspondents, public sector entities, and other entities that are owned and controlled by residents are eligible to promote Payment Banks.
- Promoters must have a successful track record of at least five years.

**Restrictions and Permitted Activities**
- Payment Banks are prohibited from undertaking lending activities directly. Consequently, they cannot issue credit cards, which involve lending.
- They can accept demand deposits (current and savings accounts) up to a prescribed limit per individual customer (initially ₹1 lakh, later increased to ₹2 lakh per individual customer).
- They can issue debit cards and ATM cards.
- They can facilitate remittances, bill payments, and offer various payment services.
- They can distribute mutual fund products, insurance products, and other non-risk-sharing simple financial products.
- They cannot accept deposits from Non-Resident Indians (NRIs).

**FDI in Payment Banks**
- Foreign Direct Investment (FDI) in Payment Banks is allowed as per the extant Foreign Direct Investment (FDI) policy for banks, which permits up to 74% under the automatic route.

Answer

Option A: 1 and 2 only

Answer

Option C: 2 only

Answer

Option D: 1, 2, and 3