Payment & Small Banks — Set 3

Correct Answer: B. Rs. 100 crore

The RBI requires a minimum paid-up capital of Rs. 100 crore for setting up a Payment Bank in India. This capital requirement ensures financial soundness while keeping the threshold accessible enough to encourage non-traditional players. The promoter must contribute at least 40% of the initial paid-up capital for the first five years. Payment Banks are designed to deepen financial inclusion by leveraging technology and existing distribution networks of telecom companies, supermarket chains, and other non-banking entities.

Correct Answer: C. 40%

The promoter must hold at least 40% of the paid-up equity capital of an SFB for the first five years. This requirement ensures that the promoter remains committed to the bank's long-term stability. Gradually, the stake must be brought down to 26% over a period of 12 years.

Correct Answer: C. RBI

The Reserve Bank of India (RBI) is the sole regulator and licensing authority for all banks, including differentiated banks. It issues guidelines under the Banking Regulation Act, 1949. RBI monitors their compliance with capital, liquidity, and operational norms.

Correct Answer: A. Subsidiaries to undertake non-banking financial services

Payment Banks cannot set up subsidiaries to undertake non-banking financial services. They must stick to their core activity of payments and basic banking. This restriction prevents the complex group structures and potential risks associated with them.

Correct Answer: D. Same as applicable to scheduled commercial banks

SFBs must maintain the Cash Reserve Ratio with the RBI at the same rate as applicable to other scheduled commercial banks. CRR is the percentage of total deposits that banks must keep with the RBI in cash. It is a tool used for monetary control and ensuring bank liquidity.

Correct Answer: D. Small Finance Bank

Small Finance Banks are ideal for MFIs because they allow for lending activities, which is the core business of MFIs. Payment Banks are restricted from lending, making them unsuitable for MFIs. Several major MFIs in India have successfully converted into SFBs.

Correct Answer: C. Universal Bank

Small Finance Banks are eligible to apply for a 'Universal Bank' license after five years of satisfactory performance. This allows them to scale up and remove the specific size and lending restrictions. It provides a growth path for successful specialized banks.

Correct Answer: D. Lending to big industries

Lending to industries is strictly prohibited for Payment Banks. Their main purpose is to facilitate high-volume, low-value transactions and provide a secure savings avenue. They focus on the migrant labor workforce and low-income households.

Correct Answer: C. AU Small Finance Bank

AU Small Finance Bank was the first SFB to go public and list its shares on the Indian stock exchanges in 2017. Listing provides transparency and allows the public to participate in the bank's growth. It also helps the promoters dilute their stake as per RBI norms.

Correct Answer: B. No, they are not allowed to accept NRI deposits

Payment Banks are not permitted to accept deposits from Non-Resident Indians (NRIs). Their target audience is strictly residents of India, focusing on domestic financial inclusion. They are also restricted from accepting any cross-border remittances into these accounts.