UPSC Prelims 2016 · Question 29 of 98
UPSC Prelims 2016 question on Payment Banks
- ExamUPSC CSE
- Year2016
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicBanking
- DifficultyMedium
- TypeStatement
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.
Show answer
Answer: B. 1 and 3 only
Verdict
The answer is 1 and 3 only. Telecom companies and supermarket chains can promote Payment Banks and such banks cannot lend, but they cannot issue credit cards.
Analysis
Statement 1 is CORRECT. Mobile telephone companies and supermarket chains owned and controlled by residents are among the eligible promoters, which is why the in principle approvals of August 2015 went to entities such as Airtel, Vodafone, Reliance Industries and the Department of Posts. Statement 3 is CORRECT. Payment Banks are barred from lending and must deploy deposits in government securities and other permitted instruments. Statement 2 is INCORRECT. They may issue debit cards but not credit cards, since a credit card is a lending product.
Source
The Hindu explainer on payment banks and Reserve Bank material.
How to crack it
Statements 2 and 3 are logically linked, and noticing that closes the question. A credit card is an extension of credit, so an institution barred from lending cannot issue one, which means statements 2 and 3 cannot both be true. Spotting an internal contradiction between two statements is often faster than verifying either. Then remember the design idea: a Payment Bank takes deposits and moves money but does not take credit risk.