Why in the news
The RBI withdrew the banking licence of Paytm Payments Bank Limited (PPBL) invoking Section 22 of the Banking Regulation Act, 1949; the stated reasons were repeated non-compliance and management problems seen as harming depositors.
About the Act
- Foundation of banking stability: RBI acts as regulator and supervisor of commercial banks and, since 1965, cooperative banks.
- Evolution: passed as the Banking Companies Act, 1949; renamed in 1966 to widen its scope beyond companies.
- Mandate: protect depositors and ensure sound financial principles.
- Section 5A: Act’s provisions override a bank’s Memorandum or Articles of Association.
Grounds used against PPBL (Section 22(3))
| Clause | Ground |
|---|
| 22(3)(b) | Affairs conducted in a way detrimental to depositors |
| 22(3)(c) | General character of management prejudicial to public interest |
| 22(3)(e) | Continuation serves no useful public purpose |
| 22(3)(g) | Persistent breach of payments bank licence conditions, such as KYC and transaction monitoring |
Important sections and RBI powers
| Section | Power or feature |
|---|
| 5(b) | Defines banking: accepting public deposits for lending or investment |
| 8 | Bars banks from direct trading in goods |
| 10BB | RBI can appoint or remove a bank’s Chairman or MD if detrimental |
| 22 | Licensing and cancellation |
| 35 | Inspection of books and accounts at any time |
| 35A | Power to issue binding directions |
| 36ACA | Supersession of Board and appointment of administrator |
| 38 | Winding-up proceedings through the High Court |
| 44A | Procedure for amalgamation of banking companies |
Impact of the ruling
- Operational ban: the entity cannot carry on the business of banking.
- Liquidation: RBI moving the High Court for winding-up under Section 38.
- Depositors: RBI stated PPBL has sufficient liquidity to pay existing deposits, avoiding wider panic.
- Winding up means a liquidator sells assets, pays creditors and returns any balance to depositors.
Exam angle
- Licence cancellation: Section 22; definition of banking: Section 5(b); trading ban: Section 8.
- Cooperative banks were brought under RBI oversight by the 1965 Amendment (Section 56).