UPSC Prelims Practice Questions — RBI cancels banking licence of Paytm Payments Bank

Q1. Payments bank licences under the 2015 differentiated banking framework are issued and regulated by which one of the following?

  • A. Securities and Exchange Board of India (SEBI)
  • B. National Bank for Agriculture and Rural Development (NABARD)
  • C. Reserve Bank of India (RBI)
  • D. Insurance Regulatory and Development Authority of India (IRDAI)

Q2. In the RBI's order against Paytm Payments Bank, the entity was barred from the business of 'banking' as defined in Section 5(b) of the Banking Regulation Act, 1949. Which one of the following is the correct meaning of 'banking' under this provision?

  • A. Accepting, for the purpose of lending or investment, deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise
  • B. Any activity involving the transfer of money between two persons through an electronic or digital channel for a fee
  • C. The issuance and management of prepaid payment instruments, wallets and other stored-value products for retail customers
  • D. Providing credit and investment advisory services to the public against a commission or brokerage

Q3. Regarding the RBI's power to cancel a banking licence under Section 22 of the Banking Regulation Act, 1949, consider the following: 1. RBI may cancel a licence if the banking company ceases to carry on banking business in India. 2. A banking company aggrieved by cancellation may appeal to the Central Government within thirty days. 3. Cancellation of a bank's licence requires prior approval of Parliament. 4. Where no appeal is preferred, the decision of the RBI is final. Which of the above is/are correctly identified?

  1. RBI may cancel a licence if the banking company ceases to carry on banking business in India.
  2. A banking company aggrieved by cancellation may appeal to the Central Government within thirty days.
  3. Cancellation of a bank's licence requires prior approval of Parliament.
  4. Where no appeal is preferred, the decision of the RBI is final.
  • A. 1 and 4 only
  • B. 1, 2 and 4
  • C. 2, 3 and 4
  • D. 1, 2, 3 and 4

Q4. The RBI first restricted Paytm Payments Bank by barring it from onboarding new customers (March 2022) and finally cancelled its banking licence in April 2026. Approximately how many years elapsed between this first restriction and the cancellation?

  • A. About two years
  • B. About four years
  • C. About six years
  • D. About eight years

Q5. Comparing the successive RBI actions against Paytm Payments Bank, consider the following: 1. The March 2022 action barred the bank only from onboarding new customers, whereas the 2024 action additionally barred deposits and credit transactions in existing accounts. 2. Unlike the earlier restrictions, the April 2026 order cancelled the banking licence entirely under Section 22(4). 3. The 2024 restrictions, unlike the 2026 cancellation, permanently prohibited all UPI transactions across the entire Paytm ecosystem forever. Which of the statements given above is/are correct?

  1. The March 2022 action barred the bank only from onboarding new customers, whereas the 2024 action additionally barred deposits and credit transactions in existing accounts.
  2. Unlike the earlier restrictions, the April 2026 order cancelled the banking licence entirely under Section 22(4).
  3. The 2024 restrictions, unlike the 2026 cancellation, permanently prohibited all UPI transactions across the entire Paytm ecosystem forever.
  • A. 1 and 2 only
  • B. 1 and 3 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q6. Regarding the winding up of a bank and depositor protection in India, consider the following: 1. On liquidation, DICGC pays each depositor a claim up to Rs 5 lakh. 2. RBI stated it will apply to the High Court for winding up of Paytm Payments Bank. 3. DICGC deposit insurance covers the principal amount but excludes accrued interest. 4. DICGC is required to pay the liquidator within two months of receiving the claim list. Which of the above is/are NOT correct?

  1. On liquidation, DICGC pays each depositor a claim up to Rs 5 lakh.
  2. RBI stated it will apply to the High Court for winding up of Paytm Payments Bank.
  3. DICGC deposit insurance covers the principal amount but excludes accrued interest.
  4. DICGC is required to pay the liquidator within two months of receiving the claim list.
  • A. 1 and 4
  • B. 2 only
  • C. 3 only
  • D. 2 and 3

Q7. In India, deposit insurance that repays depositors of a liquidated bank up to the prescribed limit is operated by which one of the following?

  • A. The National Housing Bank (NHB)
  • B. The Deposit Insurance and Credit Guarantee Corporation (DICGC)
  • C. The Pension Fund Regulatory and Development Authority (PFRDA)
  • D. The Securities and Exchange Board of India (SEBI)

Q8. Which one of the following statements best defines a 'payments bank' as distinct from a small finance bank within the RBI's differentiated banking framework?

  • A. An entity that can accept restricted demand deposits and offer payment/remittance services but cannot undertake lending
  • B. An entity that can lend to priority sectors but cannot accept demand deposits from the public
  • C. An entity that can accept unlimited deposits and undertake full-scale lending like a universal bank
  • D. An entity licensed only to issue prepaid wallets and FASTags, with no authority to accept deposits

Q9. Comparing differentiated bank categories in India, consider the following: 1. A payments bank can accept demand deposits up to Rs 1 lakh per customer but cannot lend. 2. A small finance bank is required to extend 75% of its Adjusted Net Bank Credit to the priority sector. 3. Both payments banks and small finance banks require a minimum paid-up equity capital of Rs 100 crore. Which of the statements given above is/are correct?

  1. A payments bank can accept demand deposits up to Rs 1 lakh per customer but cannot lend.
  2. A small finance bank is required to extend 75% of its Adjusted Net Bank Credit to the priority sector.
  3. Both payments banks and small finance banks require a minimum paid-up equity capital of Rs 100 crore.
  • A. 1 and 2 only
  • B. 1 and 3 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q10. The RBI cancelled the banking licence of Paytm Payments Bank Limited (effective 24 April 2026) under which one of the following legal provisions?

  • A. Section 22(4) of the Banking Regulation Act, 1949
  • B. Section 35A of the Banking Regulation Act, 1949
  • C. Section 45 of the Banking Regulation Act, 1949
  • D. Section 45-IA of the Reserve Bank of India Act, 1934

Q11. With reference to the supervisory and enforcement measures available to the RBI over banks, consider the following: 1. Imposing monetary penalties for KYC and cybersecurity non-compliance. 2. Placing a bank under the Prompt Corrective Action (PCA) framework. 3. Barring a bank from onboarding new customers under Section 35A of the BR Act. 4. Suspending the trading of a company's shares on the stock exchange. Which of the above is/are correctly identified as RBI measures?

  1. Imposing monetary penalties for KYC and cybersecurity non-compliance.
  2. Placing a bank under the Prompt Corrective Action (PCA) framework.
  3. Barring a bank from onboarding new customers under Section 35A of the BR Act.
  4. Suspending the trading of a company's shares on the stock exchange.
  • A. 1 and 3 only
  • B. 1, 2 and 3
  • C. 2 and 4 only
  • D. 1, 2, 3 and 4