In Today’s News:
- Payments bank and doubling of balance limit.
- G-Sec Acquisition Program 1.0.
1. Payments bank and doubling of balance limit
It has been decided by RBI to enhance the limit of maximum balance at the end of the day from ₹1 lakh to ₹2 lakh per individual customer of Payments Banks with immediate effect.
Prelims GS – Economic Development
- The objectives of setting up Payments banks will be to further financial inclusion by providing
- (i) small savings accounts and
- (ii) payments/remittance services to migrant labor workforce, low-income households, small businesses, other unorganized sector entities, and other users.
- The payments bank cannot undertake lending activities.
- The minimum paid-up equity capital for payments banks shall be Rs. 100 crore.
- Eg: Paytm Payments Bank, Airtel Payments Bank, Jio Payments Bank, India Post Payments Bank, etc.
- Existing non-bank Pre-paid Payment Instrument (PPI) issuers; and other entities such as individuals/professionals; Non-Banking Finance Companies (NBFCs), corporate Business Correspondents(BCs), mobile telephone companies, super-market chains, companies, real sector cooperatives; that are owned and controlled by residents; and public sector entities may apply to set up payments banks.
- A promoter/promoter group can have a joint venture with an existing scheduled commercial bank to set up a payments bank. However, a scheduled commercial bank can take an equity stake in a payments bank to the extent permitted under Section 19 (2) of the Banking Regulation Act, 1949.
- Promoter/promoter groups should be ‘fit and proper with a sound track record of professional experience or running their businesses for at least a period of five years in order to be eligible to promote payments banks.
Scope of activities undertaken by Payments Banks:
- Acceptance of demand deposits. The payments bank will initially be restricted to holding a maximum balance of Rs. 100,000 per individual customer. (This is now changed to Rs. 200,000 per individual customer)
- Issuance of ATM/debit cards. Payments banks, however, cannot issue credit cards.
- Payments and remittance services through various channels.
- BC of another bank, subject to the Reserve Bank guidelines on BCs.
- Distribution of non-risk sharing simple financial products like mutual fund units and insurance products, etc.
Click here to know more about Payments bank on RBI official website.
2. G-Sec Acquistion Program 1.0
The first purchase of government securities for an aggregate amount of ₹25,000 crores under G-SAP 1.0 will be conducted on April 15, 2021.
Prelims GS – Economic Development
G-SAP 1.0 and OMO:
- The Reserve Bank will conduct the open market purchase of government securities of ₹1 lakh crore under the G-sec Acquisition Programme (G-SAP 1.0) in Q1 2021-22 with a view to enabling a stable and orderly evolution of the yield curve.
- This will reduce volatility in bond prices.
- Open market operations (OMO) refers to a central bank buying or selling short-term Treasurys and other securities in the open market in order to influence the money supply, thus influencing short-term interest rates.
- Purchasing securities by the Central Bank adds money to the system, making loans easier to obtain and interest rates decline.
- Selling securities from the central bank’s balance sheet removes money from the system, making loans more expensive and increasing rates.
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