UPSC Prelims 2016 Q4: Indian Economy – Digital Payments & Financial Inclusion
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.
- (a) 1 and 2 only
- (b) 1 and 3 only
- (c) 2 only
- (d) 1, 2 and 3
Answer: (b) 1 and 3 only
Explanation
Payment Banks
Proposed by the Nachiket Mor Committee; RBI issued guidelines in November 2014.
They take small deposits and handle payments, but do not lend.
| Statement | Verdict | Fact |
|---|---|---|
| 1. Mobile telephone companies and supermarket chains owned and controlled by residents are eligible to be promoters | Correct | Both are named in the RBI guidelines |
| 2. Payment Banks can issue both credit cards and debit cards | Incorrect | They can issue debit and ATM cards only; no credit cards |
| 3. Payment Banks cannot undertake lending activities | Correct | They are barred from lending |
Key rules:
| Feature | Detail |
|---|---|
| Deposit limit | Rs 1 lakh per customer at launch; raised to Rs 2 lakh in 2021 |
| Investment | At least 75% of demand deposits in Government securities |
| Minimum capital | Rs 100 crore |
| Cannot accept | NRI deposits |
Answer: (b) 1 and 3 only.
Why each option is right or wrong
- (a) Incorrect. Statement 2 is false; Payment Banks cannot issue credit cards.
- (b) CORRECT. Telecom firms and supermarket chains may be promoters, and there is no lending.
- (c) Incorrect. Statement 2 is the only false one; credit cards are not allowed.
- (d) Incorrect. Statement 2 fails because issuing a credit card is a form of lending.
Key point
Payment Banks (2014 guidelines): small deposits, debit cards, remittances; no lending and no credit cards; 75% of deposits in Government securities.
Remember
Payment Banks: deposits and debit cards, no lending.
Common mistakes
- Forgetting that a credit card is a loan, so a non-lending bank cannot issue it.
- Confusing Payment Banks with Small Finance Banks, which can lend.
- Thinking only banks and NBFCs can promote a Payment Bank.
Exam tip
Payment Bank = pay, do not lend. Any option with credit or loans is wrong.
Sources
- Reserve Bank of India — Guidelines for Licensing of Payments Banks (27 November 2014)
- Reserve Bank of India — Committee on Comprehensive Financial Services for Small Businesses and Low Income Households (2014)