What does a scheduled bank status mean for Paytm Payments Bank?

Billionaire Vijay Sekhar Sharma’s Paytm Payments Bank has been upgraded to a scheduled bank by the Reserve Bank of India. Scheduled banks refer to those banks which have been included in the Second Schedule of Reserve Bank of India Act, 1934.

This is expected to help the four-and-a-half years old bank expand its financial services operations as this makes it eligible to partner in government-run financial inclusion schemes. Other payments banks that have been added to the Second Schedule include Fino Payments Bank and India Post Payments Bank. 

As a scheduled bank, Paytm Payments Bank can take part in Request for Proposals issued by the government and other large corporations, primary auctions, fixed-rate and variable rate repos, and reverse repos, along with participation in marginal standing facility.  

It now becomes eligible for refinancing facility from the RBI at the bank rate, acquires membership to the clearing house, and gets access to currency storage facility.

Banks which satisfy the RBI that their affairs are not being conducted in a manner detrimental to the interests of their depositors are included in the second schedule.

Paytm Payments Bank, which is owned 49% by One97 Communications and 51% by its founder Vijay Sekhar Sharma, had 64 million savings accounts as of March 31 and over Rs 5,200 crore in deposits.

Even with a status upgrade, being a payments bank, it still cannot lend or issue credit cards on its own. Payment banks would be eligible to become a small finance bank once they complete five years of operations. They can then undertake lending activities. This conversion is not automatic and requires the central bank’s approval.

According to RBI guidelines, the maximum balance an individual payments bank customer can hold is Rs 2 lakh. Therefore, a scheduled bank status will not fundamentally alter the way in which Paytm Payments Bank is conducting its business.

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