On October 7, 2021, the Reserve Bank of India (RBI) issued a notification titled “Inclusion of Paytm Payments Bank Limited” in the Second Schedule of the Reserve Bank of India Act, 1934. In the notification, while directing all Scheduled Commercial Banks (SCBs), RBI stated that “Paytm Payments Bank Limited” has been included in the Second Schedule to the Reserve Bank of India Act, 1934.
Paytm Payment Bank Ltd. is a Non-government Banking Company registered under Section 3 of the Companies Act, 2013. Under Section 42(6)(a)(iii), the RBI is conferred with the powers to direct inclusion in the Second Schedule of any bank not already so included which carries on the business of banking in India.
The Reserve Bank for India Act, 1934 was enacted with the purpose of providing an instrument for regulation of Bank notes and keeping a reserve for ensuring monetary stability in the country. The Reserve Bank of India (RBI) was established under the act for managing the currency and carrying on business of Banking efficiently in India. For the purpose, the act was constructed with the adequate provisions for the regulation of other banks in India and accordingly enabled RBI to include banks in Second Schedule of the act for the application of its provisions. These banks are called scheduled banks.
Second Schedule and Associated Provisions
The Second Schedule of the Reserve Bank of India Act, 1934 provides a list of Scheduled Banks as per Section 2(e). The Scheduled Banks are regulated essentially under Section 42 of the Act.
Section 42 of the Act talks about cash reserves of Scheduled Banks to be kept with the bank. It states that every bank included in the Second Schedule shall maintain with the Bank an average daily balance of amount which shall not be less than such per cent of the total of the demand and time liabilities in India of such bank as shown in the return referred to in Sub-section (2), as the Bank may from time to time, having regard to the needs of securing the monetary stability in the country, notify in the Gazette of India. “Average daily balance’’ is the average of the balances held at the close of business on each day of a fortnight, starting from Saturday to Friday and inclusive of both days. The section imposes liability on banks where these liabilities shall not include the 4 exceptions as enumerated under section 42(1) (c) of the Act.
Scheduled Banks as listed under Second Schedule shall comply with the criteria of maintaining cash reserves with the Bank. Paytm Payment Bank Ltd. was recently added to this list by the RBI after observing the growing banking business.