Anti-Defection Law and Merger Clause Constitutional Validity

For Prelims:  Tenth Schedule, Judicial review, Supreme Court,  Speaker , Members of Legislative Assembly

For Mains: Anti-Defection Law: Evolution, provisions, and challenges, Role of the Speaker and issues of neutrality, Judicial review and landmark judgments on defection

Source:TH

Why in News? 

Seven former MPs of the Aam Aadmi Party joined the Bharatiya Janata Party and have cited the “merger” provision under the anti-defection law to avoid disqualification.

• This has raised constitutional questions on whether a legislature party alone can claim a valid merger without the involvement of the original political party.

Summary

• The Anti-Defection Law aims to ensure political stability, but the misuse of the “merger” clause has raised serious constitutional concerns about its effectiveness.
• Key issues include loopholes enabling mass defections, Speaker’s bias, delayed decisions, and the weakening of legislative independence and democracy.

What is the Anti-Defection Law?

• About: The Anti-Defection Law is a set of rules in the Indian Constitution designed to prevent elected politicians (Members of Parliament or State Legislative Assemblies) from switching political parties for personal gain or political maneuvering.
  • It was introduced to bring stability to the parliamentary system and stop the infamous "Aaya Ram, Gaya Ram" culture of the 1960s and 70s, where legislators frequently changed sides, causing governments to collapse.
    • Between 1967 and 1972, nearly 2,000 cases of defection occurred, with about 50% of legislators switching parties, some multiple times. 
  • It was introduced to bring stability to the parliamentary system and stop the infamous "Aaya Ram, Gaya Ram" culture of the 1960s and 70s, where legislators frequently changed sides, causing governments to collapse.
  • It was added to the Constitution by the 52nd Amendment Act in 1985, which created the Tenth Schedule.
  • The law was strengthened by the 91st Constitutional Amendment Act, 2003, which omitted the provision related to a "split" (where 1/3rd members could defect) and retained only the "merger" provision. 
• Grounds for Disqualification:
  • Voluntarily giving up membership: If an elected member formally resigns from the political party on whose ticket they were elected. 
    • The Supreme Court has ruled that "voluntarily giving up" can be inferred from a member's conduct, even without a formal resignation.
  • Defying the Party Whip: If a member votes, or abstains from voting, in the House contrary to the directions issued by their political party, without obtaining prior permission.
  • Independent Members: If a member elected as an "Independent" candidate joins any political party after the election.
  • Nominated Members: If a nominated member (who is not elected but appointed) joins a political party after six months of taking their seat in the House.
• Exceptions to Disqualification: 
  • The 'Merger' Clause: If a political party merges with another party, and at least two-thirds of the legislators of that party agree to the merger, they are protected from disqualification.
    • To claim protection under the 'Merger' Clause of the Anti-Defection Law (Paragraph 4 of the Tenth Schedule), a specific "Twin Test" must be strictly satisfied. It is not enough for legislators to simply switch sides in large numbers.
      • Test One (The Origin): There must be a formal merger of the original political party (the broader organizational entity) with another political party.
      • Test Two (The Numbers): Following that party-level merger, at least two-thirds of the members of its legislature party (the elected MPs or MLAs in the House) must agree to and adopt the merger.
      • The act of merging must originate from the political party itself. A group of elected legislators cannot independently engineer a merger solely to ward off anti-defection proceedings.
• Presiding Officers: If a member is elected as the Speaker or Chairman of the House, they can resign from their political party to maintain neutrality in their role, and they will not be disqualified. 
  • They can rejoin their party after their tenure ends.
• Role of the Presiding Officer: The power to decide on questions of defection lies exclusively with the Presiding Officer of the House- the Speaker in the Lok Sabha/Legislative Assemblies, and the Chairman in the Rajya Sabha/Legislative Councils.

Judicial Pronouncements Regarding  Anti-Defection

• Padi Kaushik Reddy v. State of Telangana (2025): SC urged Parliamentary reforms to ensure timely and fair adjudication of defection cases and re-examine the Speaker’s role. 
• Subhash Desai vs Principal Secretary Governor of Maharashtra (2023): SC held that the original political party and the legislature party are separate entities, and clarified that a legislature party can claim protection from disqualification only when a merger is initiated by the original political party, not on its own.
• Keisham Meghachandra Singh vs The Hon’ble Speaker, Manipur Legislative Assembly (2020): Speaker must decide disqualification cases within 3 months; delays defeat the Tenth Schedule. 
  • SC also suggested an independent tribunal to ensure neutrality and speed. 
• Ravi S. Naik v. Union of India (1994): Speaker must act as a neutral adjudicator, an MP/MLA can be disqualified without formally resigning if conduct shows defection. 
• Kihoto Hollohan v. Zachillhu (1992): Speaker’s decisions under the Anti-Defection Law are subject to judicial review in cases of mala fide intent, procedural irregularity, or constitutional violation. 

What are the Concerns Regarding the Anti-Defection?

• Merger Loophole (Wholesale Defection): The provision allowing a two-thirds majority to claim a “merger” has effectively enabled large-scale defections without disqualification. 
  • This creates a situation where individual defection is punished, but group defection is protected, weakening the original intent of ensuring political stability.
  • In practice, the merger provision has often been interpreted based on numerical strength within the legislature, with two-thirds support treated as sufficient even without a formal party merger, reducing it to a numbers game and undermining the core objective of the Tenth Schedule.
• Partisan Role of the Presiding Officer: The authority to decide disqualification lies with the Speaker/Chairman, who often belongs to a political party. 
  • This raises concerns of bias, as decisions may be influenced by political considerations rather than constitutional principles.
• Procedural Ambiguity in Adjudication: The Speaker/Chairman must decide whether the “merger” meets Paragraph 4 or amounts to defection; until then, MPs are deemed to belong to their original party, creating a situation where they may support another party while still being bound by their original party’s whip, risking disqualification. 
• No Fixed Time Limit for Decisions: The law does not specify a strict timeline for deciding disqualification cases. 
  • As a result, proceedings are often delayed, allowing defecting legislators to continue in office or even complete their tenure without facing consequences.
• Curtailment of Free Speech and Dissent: The anti-defection law enforces strict party discipline through whips, even on ordinary legislative matters. 
  • This limits the ability of elected representatives to express independent views or vote according to their conscience.
• Weakening of Representative Democracy: The law shifts the accountability of legislators from their voters to their party leadership. 
  • This undermines the core principle that elected representatives should act in the interest of their constituents. 
• Judicial Ambiguity: The interpretation of Paragraph 4 remains unsettled, as the Bombay High Court (2022) upheld a “merger” based solely on two-thirds of legislators joining another party, without requiring a merger of the original political party.
  • This view, now challenged in Girish Chodankar vs The Speaker Goa Legislative Assembly (2026), treats Paragraph 4(2) as a standalone provision and is criticised for enabling defections. 

What Measures can be Implemented to Fortify the  Anti-Defection Law?

• Establishing an Independent Adjudicating Authority: The Dinesh Goswami Committee on Electoral Reforms (1990) and the Election Commission of India (ECI) have recommended that disqualification petitions should be decided by the President (for MPs) or the Governor (for MLAs) based on the binding advice of the ECI.
• Permanent Tribunal: The Supreme Court in Keisham Meghachandra v. the Hon'ble Speaker Manipur (2020) has suggested the creation of a permanent, independent tribunal headed by a retired Supreme Court judge or a retired Chief Justice of a High Court to exclusively hear defection cases.
• Mandating a Strict Time-Frame for Decisions: Parliament should amend the Tenth Schedule to mandate that the adjudicating authority must decide on a disqualification petition within a fixed period, ideally three months, as suggested by the Supreme Court in the Keisham Meghachandra Singh (2020) judgment.
• Restricting the Application of the Party Whip: As recommended by the Law Commission of India (170th Report), the issuance of a whip should be restricted only to motions where the survival of the government is at stake such as No-Confidence Motions, Confidence Motions, and the passing of Money Bills or the Budget. 
  • For all other legislation, members should be free to vote according to their conscience or their constituents' interests without the threat of disqualification.
• Re-evaluating 'Merger' Clause: The law must explicitly clarify that a "merger" requires the primary political party (the organizational wing) to merge first, and the two-thirds agreement of the legislature party is merely a secondary condition. 
  • A legislature party should not be allowed to execute a merger independently.
• Closing the "Resignation" Loophole: To stop the growing trend of legislators resigning to topple governments and subsequently fighting by-elections on a rival party's ticket, stricter electoral penalties are required.
  • A legislator who resigns from their seat should be barred from contesting any by-election for the remainder of the duration of that specific Assembly or Parliament.
• Strengthening Inner-Party Democracy: Defections are often a symptom of highly centralized and undemocratic party structures.
  • Enacting laws that mandate regular, transparent, and democratic internal elections within political parties can reduce the dictatorial control of party high commands, giving legislators a legitimate platform to voice dissent without needing to defect.

Conclusion

The merger clause was intended to safeguard democratic dissent, but its growing misuse risks turning it into a tool for political opportunism. Continued judicial scrutiny will be key to restoring a balance between legislative freedom and party stability.

Drishti Mains Question:

Q.  Discuss the ‘merger’ clause under the Tenth Schedule. How has its interpretation evolved through judicial pronouncements?

Frequently Asked Questions (FAQs) 

1. What is the Anti-Defection Law?
   It is part of the Tenth Schedule (52nd Amendment, 1985) aimed at preventing political defections and ensuring stability in legislatures.
2. What is the ‘merger’ provision under the Anti-Defection Law?
   It allows exemption from disqualification if the original political party merges with another and at least two-thirds of legislators support it.
3. What is the ‘twin test’ for a valid merger?
   It requires (i) merger of the original political party and (ii) support of two-thirds of the legislature party.
4. What did the Supreme Court clarify in the Subhash Desai case (2023)?
   It held that the original political party and legislature party are distinct, and legislators cannot claim merger independently.
5. What are key concerns with the Anti-Defection Law?
   Major issues include misuse of the merger clause, Speaker’s bias, delays in decisions, and restrictions on free speech.

UPSC Civil Services Examination, Previous Year Questions (PYQ) 

Prelims:

Q. Which one of the following Schedules of the Constitution of India contains provisions regarding anti-defection? (2014)

(a) Second Schedule
(b) Fifth Schedule
(c) Eighth Schedule 
(d) Tenth Schedule 

Ans: (d) 

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Mains: 

Q. The role of individual MPs (Members of Parliament) has diminished over the years and as a result healthy constructive debates on policy issues are not usually witnessed. How far can this be attributed to the anti-defection law which was legislated but with a different intention?(2013)

National Panchayati Raj Day 2026

For Prelims: 73rd Constitutional Amendment, Panchayati Raj Institutions, Model Youth Gram Sabha Initiative, People's Plan Campaign, Panchayat NIRNAY, 15th Finance Commission, State Election Commission (SEC), SabhaSaar, SVAMITVA Scheme,eGramSwaraj, Rashtriya Gram Swaraj Abhiyan (RGSA), Sustainable Development Goals (SDGs) 

For Mains: Decentralization and grassroots democracy in India, 73rd Constitutional Amendment: provisions and significance, Role of PRIs in rural development and governance

Source: PIB

Why in News? 

India celebrated National Panchayati Raj Day (NPRD) on 24th April 2026, commemorating the enactment of the  73rd Constitutional Amendment Act, 1992, which granted constitutional status to Panchayati Raj Institutions (PRIs), marking 33 years of this defining milestone in India’s democratic journey. 

Summary

• National Panchayati Raj Day 2026 marked 33 years of the 73rd Constitutional Amendment Act, 1992, which gave constitutional status to Panchayati Raj Institutions and strengthened grassroots democracy in India.
• The system has expanded participatory governance through a three-tier structure and reservations, but continues to face challenges like fiscal dependency, weak devolution, capacity gaps, and parallel administrative structures.

What is the National Panchayati Raj Day?

• Historical Background: The day commemorates the institutionalization of the Panchayati Raj system in India through the 73rd Constitutional Amendment Act, 1992.
  • The Act came into force on 24th April 1993, marking a defining moment in the history of decentralized political power in India.
• First Celebration: The first National Panchayati Raj Day was celebrated in 2010 under the leadership of then-Prime Minister Manmohan Singh.
• Objective: To assess the progress of rural decentralization, interact with Gram Panchayat representatives, and recognize their outstanding contributions to rural development.
• Theme for NPRD 2026: The theme, “Sashakt Panchayat, Sarvangeen Vikas” (Empowered Panchayats, Holistic Development), focuses on localising Sustainable Development Goals (SDGs) and strengthening digital governance through e-Gram Swaraj to achieve the vision of “Viksit Bharat” by 2047. 

What are the Key Provisions of the 73rd Constitutional Amendment Act (1992)?

• Structural Additions to the Constitution: The 73rd CAA fundamentally altered India's federal structure by shifting it from a two-tier system (Centre and States) to a multi-level decentralized architecture, providing "practical shape" to Article 40 (Directive Principles of State Policy).
  • Part IX: Inserted Articles 243 to 243-O, explicitly detailing the mechanics of rural local self-government.
  • Eleventh Schedule: Added to enumerate 29 functional items (e.g., land improvement, minor irrigation, rural electrification) designated for devolution to Panchayati Raj Institutions (PRIs) under Article 243G.
• Institutionalization of Participatory Democracy: India has over 2.5 lakh Panchayats and 24.04 lakh elected representatives. Remarkably, women make up 49.75% of these representatives.
  • Gram Sabha (Article 243A): Established as the foundational unit. Unlike the elected Panchayat, the Gram Sabha consists of all registered voters in a village, making it the only forum of direct, participatory democracy in the Indian constitutional scheme.
• Three-Tier Architecture (Article 243B & 243C): Mandated a uniform three-tier system: Village, Intermediate (Block/Mandal), and District levels.
  • The Demographic Exception: States with a population under 20 lakhs are exempt from establishing the intermediate tier, preventing bureaucratic bloat in smaller states.
• Electoral Mechanics: All members at all three levels are chosen by direct election.
  • However, to maintain structural cohesion, the chairpersons at the intermediate and district levels are elected indirectly from amongst the elected members.
• Demographic Equity & Reservations (Article 243D):
  • SC/STs: Reservation is strictly proportional to their demographic share in the Panchayat area across all three tiers.
  • Women's Quota: A non-negotiable minimum of 33% (one-third) of all seats and chairperson offices must be reserved for women. 
    • This includes a one-third sub-quota within the SC/ST reserved seats.
• Tenure Security and Dissolution Guardrails (Article 243E): Fixed a rigid five-year term.
  • If a Panchayat is prematurely dissolved, elections must occur before the expiration of a six-month period.

  • A reconstituted Panchayat operates only for the unexpired remainder of the dissolved body's term, preventing states from manipulating dissolution to reset election cycles. 

    • If the remainder is less than six months, elections are not mandatory.

• Creation of Independent State-Level Watchdogs

  • State Election Commission (Article 243K): Vested with the superintendence, direction, and control of electoral rolls and the conduct of PRI elections. To ensure autonomy, the State Election Commissioner has security of tenure equivalent to a High Court Judge.
  • State Finance Commission (Article 243-I): Mandated every five years to review PRI finances, recommend tax distribution between the State and Panchayats, and determine grants-in-aid, thereby institutionalizing financial devolution.

What are the Challenges facing the Panchayati Raj Institutions (PRIs)?

Fiscal Strangulation: The "Dependency Trap"

• Dismal Own Source Revenue (OSR): According to the RBI’s 2024 report on ‘Finances of Panchayati Raj Institutions’, PRIs generate a mere 1.1% of their total revenue from local taxes and fees. 
  • The Ministry of Panchayati Raj (MoPR) expert committee data further reveal that the national average for per capita OSR collected by Panchayats is a negligible Rs 59 annually.
• Overwhelming Grant Dependency: Approximately 95% of Panchayat revenue comes from higher tiers of government (roughly 80% from Central grants and 15% from State grants). 
  • In states with low OSR, like Uttar Pradesh and Madhya Pradesh, this dependency crosses 95%.
• The "Tied Funds" Constraint: While the 15th Finance Commission awarded substantial funds to Rural Local Bodies, 60% of these are "tied grants" (mandated strictly for sanitation, drinking water, etc.). 
  • This strips Gram Panchayats of the autonomy to prioritize local, context-specific developmental needs.
• Reluctance and Ambiguity in Taxation: Even where legally empowered, PRIs hesitate to levy property or water taxes due to proximity to voters (fear of political backlash). 
• Furthermore, state laws often lack clarity on property valuation, rate revision, and taxation definitions, severely hindering OSR collection.

Administrative and Functional Erosion

• Incomplete Activity Mapping: State governments frequently devolve subjects on paper but retain control over the actual budgeting and operational frameworks.
  • Essential services (like solid waste management and drinking water) are managed by state line departments, meaning PRIs cannot levy user charges for them.
• Proliferation of Parallel Bodies: State governments frequently bypass PRIs by creating Special Purpose Vehicles (SPVs), parastatals, or line-department committees for executing schemes (e.g., rural infrastructure projects). 
  • This fragments local governance and erodes the constitutional authority of the Gram Panchayat.
• Resource Deficit over CPRs: Common Property Resources (CPRs) like forests, grazing lands, and local water bodies remain largely under the control of state line departments, cutting off a vital potential revenue stream for Gram Panchayats.

Institutional and Structural Bottlenecks

• Defunct State Finance Commissions (SFCs): Article 243-I mandates the constitution of SFCs every five years to formalize revenue-sharing between the state and PRIs. 
  • However, SFCs are routinely delayed, severely under-resourced, and their recommendations are frequently rejected or ignored by State Legislatures.
• Human Resource and Capacity Deficit: PRIs suffer from a severe shortage of technical and administrative staff (e.g., accountants, engineers). 
  • Overburdened Panchayat officials lack the training required for complex tasks like tax assessment, spatial planning, and digital auditing via eGramSwaraj.
• Social and Proxy Representation: The pervasive "Sarpanch Pati" syndrome—where male relatives wield the actual executive power on behalf of elected women representatives—continues to undermine the 33% reservation mandate (Article 243D) and stifles genuine grassroots gender empowerment

India’s Initiatives Related to PRIs

• SVAMITVA Scheme: Launched in April 2021, it uses drones and Geographical Information System (GIS) to map inhabited village areas and issue property cards. 
  • As of March 2026, surveys are complete in 3.29 lakh villages, and 2.65 crore property cards have been distributed.
• SabhaSaar: An AI-powered tool integrated with Bhashini that automatically transcribes and structures Gram Sabha meeting minutes in 23 regional languages. It is currently used by over 1 lakh Gram Panchayats.
• eGramSwaraj: A portal available in 22 languages for planning, financial management, and real-time payments and it is  linked with the Public Financial Management System.
• Gram Urja Swaraj: A dashboard tracking renewable energy assets in real-time. It monitors solar, hydel, wind, and biogas usage across 2,080 Gram Panchayats.
• Meri Panchayat App: An m-Governance platform developed by NIC to improve citizen participation and accountability, aligned with the Sustainable Development Goals (SDGs).
• Rashtriya Gram Swaraj Abhiyan (RGSA): A scheme designed to build leadership and governance capabilities to meet SDGs. 
• Model Women-Friendly Gram Panchayat (MWFGP): An initiative under SDG Theme 9 aiming to develop one model women-friendly Panchayat per district, focusing on safety, rights, and inclusive governance.
• Sashakt Panchayat–Netri Abhiyan: A special interactive training module that has trained around 1.5 lakh Elected Women Representatives (EWRs) to enhance their leadership, communication, and negotiation skills.
• Model Youth Gram Sabha (MYGS): A program engaging Class 9 and 10 students from Jawahar Navodaya Vidyalayas and Eklavya Model Residential Schools in mock Gram Sabhas to foster participatory democracy among the youth.
• Increased Finance Grants: Funding for Rural Local Bodies jumped from Rs 2.36 lakh crore under the 15th Finance Commission (2021–26) to nearly Rs 4.35 lakh crore under the 16th Finance Commission (2026–31).
  • Grants are categorized into "untied" (for local needs) and "tied" (for basic services like water and sanitation) to balance flexibility with accountability.
  • Union Budget allocations for rural development have spiked by over 211% in the last decade, reaching Rs 2.73 lakh crore for 2026–27.
  • Funds are successfully converging with major initiatives like the Viksit Bharat- G RAM G Act, 2025, Jal Jeevan Mission, and Swachh Bharat Mission to drastically improve rural infrastructure.

What Measures are Needed to Strengthen Panchayati Raj Institutions (PRIs)?

• Granular Activity Mapping: Replace broad, vague delegations of the 11th Schedule's 29 subjects with strict, granular "Activity Mapping." 
  • Clearly delineate which specific tasks (e.g., primary school maintenance vs. teacher hiring) belong to the village, block, and district levels, eliminating overlap with state departments.
• Dismantling Parallel Bodies: State governments must abolish overlapping parastatals and Special Purpose Vehicles (SPVs) that execute rural infrastructure projects. All funds and functionaries for rural development must be routed exclusively through PRIs.
• Creation of a Panchayat Management Cadre: Establish a dedicated, professional cadre of Panchayat Development Officers (PDOs), accountants, and rural engineers. This cadre should be accountable directly to the Gram Panchayat, not to the state bureaucracy (Block Development Officers).
• Digital Integration & E-Governance: Mandate the end-to-end use of eGramSwaraj and the Public Financial Management System (PFMS) for all Panchayat transactions. This ensures real-time auditing, reduces leakage, and builds state/central trust in local financial management.
• Institutionalized Social Audits: Adopt the Meghalaya Model by creating an independent Directorate of Social Audit. Social audits for all flagship schemes ( PMAY-G) must be conducted by trained local facilitators independent of the Panchayat administration.
• Curbing Proxy Representation ("Sarpanch Pati"): Introduce stringent disqualification clauses for male relatives acting as proxies for elected women representatives. Couple this with specialized leadership and administrative training exclusively for elected women and SC/ST representatives.

Conclusion

• Panchayati Raj Institutions represent grassroots democracy in India, enabling participatory and inclusive governance aligned with local needs. They have strengthened accountability and responsiveness in rural areas, showing that national development depends on empowered villages. 

Drishti Mains Question:

Q. “The success of Panchayati Raj depends more on devolution than on constitutional provisions.” Critically examine

Frequently Asked Questions (FAQs)

1. What is National Panchayati Raj Day?
   Celebrated on 24 April to mark the implementation of the 73rd Constitutional Amendment Act, 1992, promoting decentralized governance.
2. What does Part IX of the Constitution deal with?
   It covers Panchayati Raj Institutions (Articles 243–243O), defining structure, powers, and elections of PRIs.
3. What is the role of the State Finance Commission (SFC)?
   Constituted every 5 years under Article 243-I to recommend financial devolution and grants to PRIs.
4. What is the major fiscal challenge of PRIs?
   PRIs depend heavily on grants (around 95%) due to very low own source revenue (OSR).
5. What is the “Sarpanch Pati” issue?
   It refers to proxy representation where male relatives exercise power on behalf of elected women, undermining Article 243D.

UPSC Civil Services Examination, Previous Year Questions (PYQ)

Prelims

Q1. Local self-government can be best explained as an exercise in (2017)

(a) Federalism

(b) Democratic decentralisation

(c) Administrative delegation

(d) Direct democracy

Ans: (b)

Q2. The fundamental object of the Panchayati Raj system is to ensure which among the following? (2015)

1. People’s participation in development
2. Political accountability
3. Democratic decentralisation
4. Financial mobilisation

Select the correct answer using the code given below

(a) 1, 2 and 3 only

(b) 2 and 4 only

(c) 1 and 3 only

(d) 1, 2, 3 and 4

Ans: (c)

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Mains

Q1. Assess the importance of the Panchayat system in India as a part of local government. Apart from government grants, what sources can the Panchayats look out for financing developmental projects? (2018)

Q2. To what extent, in your opinion, has the decentralisation of power in India changed the governance landscape at the grassroots? (2022)

RBI Cancels Paytm Payments Bank Licence

Source: TH 

Why in News? 

The Reserve Bank of India (RBI) has cancelled the banking licence of Paytm Payments Bank Limited (PPBL), owing to persistent non-compliance and management practices deemed detrimental to public interest and violated the core conditions of its Payments Bank license.

• The cancellation was executed under the Banking Regulation Act, 1949, effectively prohibiting the entity from conducting any banking or related business with immediate effect.
• To alleviate market panic, the RBI explicitly assured that PPBL possesses enough liquidity to repay its entire deposit liability upon winding up.

What is the Payments Bank?

• About: The Nachiket Mor Committee (2014) recommended the creation of payments banks and small finance banks to promote financial inclusion, targeting low-income households, migrant workers, and small businesses.
  • Subsequently, the RBI issued licensing guidelines in 2014 and approved 11 payments bank entities to leverage technology for delivering basic financial services to underserved sections. 
    • Example: Airtel Payments Bank, India Post Payments Bank, etc.
• Objective: The primary goal is to advance financial inclusion by providing small savings accounts and high-volume, low-value payments and remittance services.
• Deposit Limits: These banks are permitted to accept demand deposits (savings and current accounts) up to a maximum limit of Rs 2 lakh per individual customer.
• Permitted Services: They can issue ATM and debit cards, offer mobile and internet banking services, and act as a Business Correspondent (BC) for other banks.
• Lending Restrictions: They are strictly prohibited from undertaking lending activities; consequently, they cannot issue credit cards or provide loans to customers.
• Investment Mandate: To ensure safety, they must invest a minimum of 75% of their demand deposit balances in Statutory Liquidity Ratio (SLR) eligible Government securities with a maturity up to one year.
• Capital Requirement: The minimum paid-up equity capital for setting up a payments bank is Rs 100 crore, and they must maintain a Capital Adequacy Ratio (CAR) of at least 15%.
• Governance: They are registered as public limited companies under the Companies Act of 2013  and are governed by the Banking Regulation Act, 1949, and the Reserve Bank of India Act, 1934.
• Third-Party Distribution: They can engage in the distribution of non-risk-sharing simple financial products like mutual fund units and insurance products.
• Exclusions: They cannot accept Non-Resident Indian (NRI) deposits and cannot set up subsidiaries to undertake non-banking financial services activities.
• DICGC: Payment banks operating in India are covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC). 
  • As per RBI guidelines, all commercial banks, including payment banks, small finance banks, and regional rural banks, are insured.
  • Under DICGC, each bank depositor is insured up to Rs 5 lakh (principal + interest) per bank under deposit insurance, applicable at the time of liquidation, licence cancellation, or merger/reconstruction.
• RBI Reforms: 
  • September 2019: RBI allowed payment banks to apply for small finance bank licences after 5 years, enabling lending and broader services.
  • October 2019: Payment banks permitted to act as authorised foreign exchange dealers for cross-border remittances.
  • February 2020: RBI introduced on-tap licensing guidelines to promote competition and innovation in the sector.

Feature	Payment Bank	Small Finance Bank (SFB)	Universal (Normal) Bank
Primary Objective	Financial inclusion and digital payments.	Credit supply to small business units and unorganized sectors.	Comprehensive banking for all sectors of the economy.
Lending/Loans	Not Allowed. Cannot issue loans or credit cards.	Allowed. Primarily focuses on small business and agriculture.	Allowed. Full range of retail and corporate lending.
Deposit Limit	Restricted (currently up to Rs 2 lakh per individual).	No specific limit.	No specific limit.
Credit Cards	Cannot issue credit cards.	Can issue credit cards.	Can issue credit cards.
Minimum Capital	Rs 100 Crore.	Rs 200 Crore.	Rs 500 Crore.
Examples	Airtel Payments Bank, India Post.	AU Small Finance Bank, Equitas Small Finance Bank.	SBI, HDFC, ICICI, PNB.

Major Powers Granted to the RBI under Banking Regulation Act, 1949

• Licensing of Banks (Section 22): No company can conduct banking business in India without a license issued by the RBI. 
  • The RBI can also cancel this license if the bank fails to comply with the stipulated conditions.
• Statutory Liquidity Ratio - SLR (Section 24): Banks are mandated to maintain a certain percentage of their total demand and time liabilities in the form of liquid assets (cash, gold, or approved unencumbered securities).
• Management Control (Section 10 & 36AA): The RBI has the power to remove managerial personnel, including the Chairman or Directors of a bank, if their conduct is detrimental to the public interest, and can appoint suitable replacements.
• Inspection and Audit (Section 35): The RBI is authorized to conduct proactive inspections of any bank's books and accounts to evaluate its financial health.
• Moratorium and Resolution (Section 45): In times of crisis, the RBI can apply to the Central Government to impose a moratorium on a failing bank, freezing its operations temporarily to prepare a scheme of amalgamation or reconstruction.

Frequently Asked Questions (FAQs) 

1. What is a Payments Bank?
   A niche banking model aimed at financial inclusion, offering deposits (up to Rs 2 lakh) and payment services but not allowed to lend.
2. On what basis can RBI cancel a banking licence?
   Under Section 22 of the Banking Regulation Act, 1949, RBI can cancel licences for non-compliance, poor management, or risk to depositors.
3. What are the key restrictions on Payments Banks?
   They cannot provide loans or credit cards and must invest 75% of deposits in government securities.
4. What is the role of RBI in bank management?
   RBI can inspect banks, remove management, impose restrictions, and initiate winding up to protect public interest.
5. What is the objective of Payments Banks?
   To promote financial inclusion by providing basic banking and remittance services to underserved populations.

UPSC Civil Services Examination, Previous Year Questions (PYQs)

Prelims 

Q. The establishment of ‘Payment Banks’ is being allowed in India to promote financial inclusion. Which of the following statements is/are correct in this context? (2016)

1. Mobile telephone companies and supermarket chains that are owned and controlled by residents are eligible to be promoters of Payment Banks. 
2. Payment Banks can issue both credit cards and debit cards. 
3. Payment Banks cannot undertake lending activities.

Select the correct answer using the code given below:

1. 1 and 2 only
2. 1 and 3 only
3. 2 only
4. 1, 2 and 3

Ans: B 

BRICS Deputy Foreign Ministers and Special Envoys Meeting

Source: TH

The meeting of BRICS Deputy Foreign Ministers and Special Envoys on the Middle East and North Africa (MENA) in New Delhi concluded without a joint consensus,  highlighting deep divisions among members over the West Asia conflicts and the  Israel–Palestine issue.

• Issuance of a 'Chair's Statement': Unable to agree on a joint statement, India (as the current BRICS Chair) issued a Chair’s Statement reflecting discussions rather than a unified position.
  • This document acknowledged discussions on the Palestine issue, the Gaza situation, the role of United Nations Relief and Works Agency (UNRWA), and the unacceptability of attacks on the United Nations Interim Force in Lebanon (UNIFIL).
• India's Shift on Israel-Palestine: Indian diplomats faced staunch opposition from almost all other members for attempting to dilute language criticizing Israel's bombardment of Gaza and Lebanon. 
  • India even suggested replacing the term "Israel" with "occupying power" in certain contexts.
• Dropping "East Jerusalem": India sought to remove references to "East Jerusalem" as the capital of a future Palestinian state - a change consistent with India's bilateral statements since 2017 but a point of friction within the broader BRICS forum.
• Expanded BRICS Grouping: The deeply polarized environment reflects the complexities of the newly expanded bloc, which now comprises Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, Indonesia, and the UAE. (Note: Saudi Arabia was granted membership but has not yet formally joined).

Read more: BRICS in the Era of Geopolitical Shifts

Right to Safe Travel on National Highways under Article 21

Source: TH

The Supreme Court has declared that the safety of commuters against road accidents and the right to safe passage on highways are part of the fundamental right to life under Article 21 of the Constitution.

• Alarming Statistics: National Highways (NHs) comprise merely 2% of India’s total road network but account for nearly 30% of all road fatalities, highlighting severe infrastructural and administrative vulnerability.
• Constitutional Interpretation: The Court held that Article 21 imposes a positive obligation on the State to ensure a safe environment, extending beyond protection from unlawful death; fatalities due to avoidable hazards reflect failure of this duty.
• Immediate Prohibitions: The Court issued an immediate ban on the construction or operation of any new commercial structures, dhabas, or eateries within the right-of-way of any National Highway.
• Strict Parking Regulations: Heavy and commercial vehicles are strictly prohibited from parking or stopping on any National Highway, carriageway, or paved shoulder, except at officially designated lay-bys and wayside amenities to prevent blind-spot collisions.
• Enforcement Actions: District Magistrates have been directed to demolish or remove all unauthorized structures within 60 days.
  • Furthermore, no licenses or trade approvals within highway safety zones can be granted without prior clearance from the National Highway Authority of India (NHAI) or the Public Works Department (PWD).
• Institutional Mechanism: A ‘District Highway Safety Task Force’ must be constituted in every district nationwide to monitor and enforce highway safety protocols.

Read more:  Transforming India’s Road Safety Landscape,

3rd Synchronised Nilgiri Tahr Survey

Source: TH

Recently, the Tamil Nadu Forest Department launched the third synchronised Nilgiri Tahr survey across the Western Ghats in coordination with Kerala.

• The survey ensures simultaneous counting across state boundaries to avoid duplication and improve accuracy, covering over 3,100 km across 14 forest divisions from Ashambu Mottai (Kanniyakumari) to Tavalamalai (Gudalur).
• Use of the “Varudai” mobile app with a supporting web-based system enables real-time data collection, GPS tracking, and standardised reporting, while participation of independent institutions such as the International Union for Conservation of Nature (IUCN), Botanical Survey of India, and Wildlife Trust of India ensures scientific rigour and credibility.

Nilgiri Tahr

• About: Also known as Varayaadu or Nilgiri Ibex, it is a caprine ungulate endemic to the Western Ghats, specifically in Kerala and Tamil Nadu (where it is the state animal).
  • It inhabits montane grasslands and shola forests at 1,200–2,600 m elevation, thriving on grassy slopes and rocky cliffs of the Western Ghats.
  • The Eravikulam National Park (ENP) in Kerala hosts the largest population, with smaller populations in the Palani Hills, Srivilliputtur, Meghamalai, and Agasthiyar Ranges.
• Behaviour & Life Cycle: A diurnal species(active in the day), with a lifespan extending up to ~9 years in the wild.
• Conservation Status: 
  • IUCN Status: Endangered
  • WPA, 1972: Schedule-I
• Threats: Habitat loss (deforestation, hydroelectric projects, monoculture), livestock competition, poaching, and local extinction (e.g., Karnataka highlands).
  • Project Nilgiri Tahr was launched in October 2023, focusing on habitat management, population monitoring and scientific conservation.
• Ecological Significance: Forms part of the prey base for large carnivores like leopard (and occasionally tiger), coexists with endemic species like the Nilgiri langur and lion-tailed macaque, and acts as an indicator of montane grassland health.

Read more: Nilgiri Tahr - Drishti IAS

Israel Airlifts Bnei Menashe from India

Source: IE

Recently, Israel flew around 240 individuals from Mizoram to Tel Aviv under “Operation Wings of Dawn” amid ongoing security concerns in West Asia. 

• This was the first of multiple batches with settlement planned in absorption centres such as Nof HaGalil in northern Israel. 
• India clarified that it did not facilitate the operation, limiting its role to ensuring legal migration and preventing trafficking.

Bnei Menashe Community

• The Bnei Menashe (meaning “sons of Manasseh”) claim descent from one of the Ten Lost Tribes of Israel, exiled around 722 BCE after the Assyrian conquest.
• They are primarily part of Mizo and Kuki tribal groups, with a population of about 7,000 in Northeast India. Their migration belief traces a journey through Persia (Iran), Afghanistan, and into Northeast India over centuries.
• Originally, most of the community had converted to Christianity under missionary influence, before a Judaising movement emerged in the late 20th century, shaped by local beliefs and organisations such as Amishav and Shavei Israel. By the 1980s, many had adopted Jewish practices.
• In 2005, Israel’s Chief Rabbinate recognised them as a “Lost Seed of Israel”, based on cultural claims and inconclusive genetic evidence, enabling phased migration. 
  • Migration takes place through Aliyah (return migration), supported by agencies like the Jewish Agency for Israel (JAFI) and Israeli government programmes. 
• Despite relocation, the community has faced integration challenges and instances of discrimination in Israel.

Read more: India-Israel Relations