RBI cracks the whip on Paytm Bank

Bars it from accepting deposits, credit transactions, top-ups in user accounts after Feb 29.
Representative Image.
Representative Image.

BENGALURU: The Reserve Bank of India (RBI) on Wednesday barred Paytm Payments Bank from accepting deposits, credit transactions and top ups in any customer account after February 29.

This comes as a big setback for the bank as the central bank cited persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action.

Earlier in March 2022, RBI directed Paytm Payments Bank to stop onboarding of new customers with immediate effect and it still maintains the curb. Patym holds 49% in the payments bank and founder Vijay Shekhar Sharma holds the rest (51%).

However, customers can withdraw or utilise balances from their accounts including savings bank accounts, current accounts, prepaid instruments, FASTags, National Common Mobility Cards, etc.

The RBI further said, “The Nodal Accounts of One97 Communications Ltd and Paytm Payments Services Ltd are to be terminated at the earliest, in any case not later than February 29, 2024.” Brokerage Bernstein in a note said, “For all practical purposes, the notifications (RBI) end operations of Paytm Payments Bank. This is a definite negative development and adds to the already heavy regulatory overhang on the business.”

It expects no immediate impact to its UPI payment business as it accounts for 70% of GMV. Milan Sharma, Founder and MD, 35North Ventures, VC firm, said customers are not negatively impacted at this time, and they can still freely operate their accounts for the unrestricted features.

“Despite not being able to provide lending and credit services, payments banks have been successful in creating widely accessible financial services for a more inclusive economy. Yet, they are in the early adoption stages, so stiffening of regulations around customer KYC, data outflows in foreign payments, and deposit limits can be expected,” he said.

In October last year, the RBI fined the bank with Rs 5.39 crore penalty for non-compliance with certain provisions of the RBI (KYC) Directions, 2016. Gaurav Goel, Founder - Director, Fynocrat Technologies said the RBI’s move primarily targets Paytm’s banking operations, allowing customers to still utilize Paytm for digital payments as long as their account remains connected to an external bank.

“This development is also expected to influence the short to medium-term stock price of Paytm (One 97 Communication),” he added.

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