InvestorQ : Are there any restrictions on how payment banks can use their funds?
Ishita Jain made post

Are there any restrictions on how payment banks can use their funds?

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Pratik vyas answered.
1 year ago

Yes, there are a number of restrictions on how payment banks can utilise their funds. This is because payment banks are not regular banks. Instead, they are new model of banks that have started operating in India and differ from conventional banks as they cannot lend to their customers. They can, however, provide simple financial products, take deposits, allow remittances, etc. These banks will not lend to customers and will have to deploy their funds in government papers and bank deposits. The idea of a payment bank was conceptualised by the Reserve Bank of India (RBI) with the aim of furthering the objective of financial inclusion by providing small savings accounts, as well as payment or remittance services to migrant labour workforce, low-income households, small businesses, other unorganised sector entities, etc. The rules for deployment of funds for payment banks are different for payments banks vis-à-vis regular banks. These rules are: a. Payments bank cannot undertake lending activities. b. Apart from amounts maintained as Cash Reserve Ratio (CRR) with the Reserve Bank on its outside demand and time liabilities, it will be required to invest minimum 75% of its "demand deposit balances" in Statutory Liquidity Ratio (SLR) eligible government securities/treasury bills with maturity up to one year and hold maximum 25% in current and time/fixed deposits with other scheduled commercial banks for operational purposes and liquidity management.