The most recent measure, which goes into effect on February 29, is in response to the directive issued by the Reserve Bank of India (RBI) in 2022 to Paytm Payments Bank to stop accepting new customer accounts.
The move by the RBI follows a thorough assessment by outside auditors that exposed ongoing non-compliances and grave supervisory issues at Paytm Payments Bank.
As part of the new regulations, Paytm Payments Bank would not be able to accept deposits or top-ups into customer accounts, prepaid cards, wallets, or FASTags after February 29, 2024, according to the RBI. These orders are expected to have a major impact, especially on Paytm’s offline merchant and gateway businesses. According to industry observers, this effectively stops the bank’s operations.
The RBI, citing the audit findings, has expressed concerns over the ongoing non-compliances within the bank. According to the RBI’s statement, these concerns warranted the imposition of further supervisory action, and as a result, Paytm Payments Bank is now barred from onboarding new customers.
The RBI’s regulatory obstacles compound the already complex issues facing One 97 Communications Ltd., a publicly traded corporation that owns a sizeable 49% share in Paytm Payments Bank. Although the full effect of these regulatory directives is not yet known, this action highlights the increased scrutiny and difficulties Paytm Payments Bank is facing in the regulatory environment.
According to the Reserve Bank of India (RBI), customers can still take money out of their accounts and use it for other purposes. Paytm Payments Bank is currently prohibited from providing credit transactions, including those through wallets, per the RBI’s rule. The RBI fined Paytm Payments Bank in 2022 for breaking regulations, including allowing data transfer to servers outside of India and using insufficient user verification processes.
The parent business of Paytm, One97 Communications, owns 49% of Payment Payments Bank. According to industry executives, the RBI has also ordered One97 Communications and Paytm Payments Services to immediately close their nodal accounts. This could force Paytm to move much of its operations to other banks. In addition, it stipulated that all pipeline transactions and nodal accounts must be fully settled. It also made it plain that no further transactions can be made after March 15, 2024, and that the process must be completed by then.
RBI Acts on Paytm Payments Bank: Limited Services Allowed…
This move comes nearly two years after the RBI directed Paytm Payments Bank to cease the registration of new customers.
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On Wednesday, the Reserve Bank of India (RBI) barred Paytm Payments Bank (PPB) from onboarding new customers and accepting deposits, top-ups, and FASTags in any customer accounts and wallets starting February 29, 2024. The decision follows a comprehensive audit revealing non-compliances.
However, the central bank, in its notification on the website, clarified that specific services, such as transferring wallet balances to savings accounts, will still be permitted.
Here’s a breakdown of the permitted services:
* Customers have the freedom to withdraw or use balances from their accounts, including savings bank accounts, current accounts, prepaid instruments, FASTags, and National Common Mobility Cards, up to their available balance.
* Settlement of all pending transactions and nodal accounts (for transactions initiated on or before February 29) must be completed by March 15. No further transactions will be permitted thereafter.
This regulatory measure has been initiated almost two years after the RBI directed Paytm Payments Bank to cease the registration of new customers. Utilizing its authority under Section 35A of the Banking Regulation Act, 1949, the central bank mandated an audit for a detailed review.
The Reserve Bank of India (RBI) has implemented this action against Paytm Payments Bank, associated with the listed entity One 97 Communications, due to persistent non-compliances and ongoing material supervisory concerns in the bank. Let’s explore the potential impact on customers.
In addition, the official announcement stressed how quickly One97 Communications Ltd. and Paytm Payments Services Ltd. must terminate their nodal accounts, with a date of February 29, 2024.
Why did the RBI put significant limits on the bank that processes Paytm payments?
The central bank has initiated this measure against Paytm in light of a detailed system audit report and the subsequent compliance validation report carried out by external auditors.
Previously, the RBI had instructed the bank to engage an Income Tax audit firm for an exhaustive System Audit of its IT system, expressing concerns about non-compliance in 2022. This latest action builds upon the RBI’s earlier directive from March 2022, which explicitly required Paytm Payments Bank Limited (PPBL) to cease onboarding new customers without delay.
The RBI declared in the late hours of the day that “continuing non-compliances and persistent material supervisory concerns in the bank were highlighted by the Comprehensive System Audit report and subsequent compliance validation report from external auditors, prompting the need for additional supervisory action.”
What effects would customers suffer from RBI’s move against Paytm Payments’ Bank?
* Beyond February 29, customers will be restricted from making additional deposits, credit transactions, or top-ups in any customer accounts, prepaid instruments, wallets, FASTags, or National Common Mobility Cards.
* Post the mentioned date, no new deposits will be entertained, although customers retain the ability to utilize the funds in their accounts for withdrawals.
* Services such as fund transfers and UPI facilities will be unavailable to customers after February 29, 2024.
Paytm, founded by Vijay Shekhar Sharma in 2010, is a leading Indian digital payments and e-commerce platform. Initially launched as a mobile recharge and bill payments app, Paytm expanded its services to become a comprehensive financial and commercial platform. Over the years, it has gained widespread popularity and user trust, becoming one of the most widely used digital wallets in India.
In 2017, Paytm ventured into the banking sector with the launch of Paytm Payments Bank, after receiving approval from the Reserve Bank of India (RBI). Paytm Payments Bank operates as a subsidiary of One97 Communications Ltd., the parent company of Paytm.
Paytm Payments Bank offers a range of financial services, including savings and current accounts, digital wallets, UPI transactions, and more. Users can open a savings account with Paytm Payments Bank seamlessly through the app, allowing them to manage their finances digitally.
Despite its initial success, Paytm Payments Bank has faced regulatory scrutiny. In 2022, the RBI directed the bank to stop accepting new customer accounts due to concerns about non-compliance. A comprehensive audit conducted by external auditors revealed persistent non-compliances and material supervisory concerns within the bank, leading to regulatory actions.
The recent RBI directive, effective from February 29, 2024, imposes strict curbs on Paytm Payments Bank, including halting the acceptance of deposits and top-ups, barring new customer onboarding, and discontinuing various banking services. This move adds to the regulatory challenges faced by Paytm, impacting its operations and potentially disrupting its offline merchant and gateway businesses.
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The future developments and responses from Paytm and regulatory authorities will be crucial in understanding the implications and potential restructuring of Paytm Payments Bank within the evolving landscape of India’s digital financial services.
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