The new faultlines

With Mint Road's action on Paytm Payments Bank, it may be time to put the spotlight on a few lingering issues, reports Raghu Mohan

- Raghu Mohan

"For want of a nail, the shoe was lost; for want of a shoe, the horse was lost; and for want of a horse, the rider was lost." Commonly attributed to Benjamin Franklin, it can be a trigger for a fresh look, after the developments at Paytm Payments Bank (PPB), at the following: Should there be a revisit of the domestic-systemically important bank (D-SIB) framework, and is there a case for this to be widened to cover more kinds of regulated entities (RES)? Also, should there be an examination of the root causes that led to the domination of UPI (Unified Payments Interface) apps like PhonePe and Google Pay (owned by foreign capital), and its interlinkage with the pricing of UPI? Take D-SIBS, a list of which has been released by the Reserve Bank of India (RBI).

As of now, there are three banks on it: State Bank of India, HDFC Bank, and ICICI Bank.

But the PPB episode tells us that even a payments bank (PB) can cause systemic disturbance if it does not adhere to norms. The global financial crisis following the dramatic collapse of Silicon Valley Bank, Signature Bank, and the epitaph of Credit Suisse which now resides in the belly of UBS - tells us that new risks are coming to the fore. And the idea of systemically important institutions may have to be rethought. Or flashback to 2002: Madhavpura Mercantile Cooperative Bank (MMCB) had unsettled the authorities.

The bank issued pay-orders (POS) of 1,200 crore to stock broker Ketan Parekh, which were discounted by Bank of India (BoI). The MMCB-Bol saga, a case of conflating POS with cheques, caused instability.

A different approach?