Payment and Settlement Systems Act (PSSA), 2007 & PSSA 2018- Explained



  • GS Mains Paper- 3
  • Economy

Why in news?

  • The inter-ministerial committee set up to finalize the amendments to the Payment and Settlement Systems Act (PSSA), 2007, has submitted its report.
  • When PSSA was passed by Parliament in December 2007, it initiated the first phase of recognizing payments from banking or classic banking.

What is the difference between classic banking and payments?

  • Classic banking is “accepting, for the purpose of lending and investment, of deposit of money from individuals or legal entities”.
  • Bank’s earnings would directly depend on how they are able to reduce cost of deposit through current account savings account and are able to lend at higher rates with a decision on security/risk taken for such lending.
  • Apart from the interest income, banks would impose different kinds of fees for providing loan products, as an additional revenue stream.
  • Payments, on the other hand, are the transfer of monetary value from a person/legal entity to another person/legal entity for either consideration towards goods and services rendered or just transfer of money.

What is the recommendation of PSSA 2018 draft amendment?

  • It is a step towards separating banking and payments.
  • It recommends setting up a separate seven-member Payments Regulatory Board (PRB).
  • It will be chaired by a person appointed by the government in consultation with Reserve Bank of India (RBI).
  • There will be one deputy chairman nominated by the central board of RBI, two members appointed by the central board of RBI, one officer nominated by the government and two whole-time members.
  • The proposed Bill recognizes RBI’s role in the context of monetary policy in making regulations for existing or new payments systems/enhancements/amendments.
  • It also provides for test systems or regulatory sandbox for a period of six months for a legal entity to apply and launch the test system/innovation.