RBI imposes restrictions on Paytm Payments Bank, stops onboarding of new customers

In a significant regulatory move, the Reserve Bank of India (RBI) has taken strict action against Paytm Payments Bank, preventing the onboarding of new customers amid supervisory concerns. The latest development follows the RBI’s directive in 2022, instructing the bank to appoint an Income Tax audit firm to conduct a comprehensive System Audit of its IT system due to persistent non-compliance issues.

The Comprehensive System Audit report, coupled with subsequent compliance validation, revealed continued non-compliance, prompting the RBI to exercise its powers under the Banking Regulation Act. As a consequence, Paytm Payments Bank has been barred from offering certain services to its customers.

Effective February 29, the RBI’s restrictions encompass a halt on further deposits, credit transactions, or top-ups in any customer accounts, including prepaid instruments, wallets, FASTags, and National Common Mobility Cards. While customers retain the ability to withdraw funds, no new deposits will be permitted. Moreover, the bank is prohibited from providing services such as fund transfers and utilization of the UPI facility after the specified date.

The regulatory action extends to the termination of nodal accounts belonging to One97 Communications Ltd, the parent company of Paytm, and Paytm Payments Bank. Settlements for transactions initiated on or before February 29 must be concluded by March 15, with no further transactions permitted thereafter.

Notably, Paytm Payments Bank will no longer accept new users from February 29 onwards. Prospective customers who have not already created an account by this date will be unable to do so. Existing users will face limitations on the use of Paytm wallets, FASTags, and Mobility Cards after this cutoff. The regulatory measures are attributed to “non-compliance and continued material supervisory concerns in the bank,” according to the RBI.

Paytm Payments Bank, an associate company of PAYTM, boasts over 100 million KYC customers, 300 million wallet users, 30 million bank account holders, and a 17 percent market share in FASTag by value. Despite earlier restrictions on new customer onboarding, the latest actions prohibit any credit or deposit transactions after February 29, 2024.

Basic transaction services through Paytm Payments Bank, including Unified Payments Interface (UPI), IMPS, Aadhaar-enabled payments, among others, have been frozen by the RBI. The ban extends to other banking services such as fund transfers, Aadhaar Enabled Payment System, Immediate Payment Service, Bharat Bill Payment Operating Unit, and UPI facilities.

Customers are granted the ability to freely withdraw funds without limitations, but the inability to send or receive money from their accounts will impact the core services provided by Paytm. The restrictions are set to disrupt Paytm Wallet, Paytm UPI, and Bill Payment Services, leaving the bank to only offer merchant services on its app from March 1, 2024.

The RBI’s stringent measures are anticipated to force account holders to liquidate their balances and close accounts, while merchants are likely to migrate to alternative UPI players. The impact is clear: services will remain normal until February 29, with users facing restrictions on deposits, credit transactions, and top-ups thereafter. Despite the limitations, users can continue to withdraw and use their existing funds in various services until the balance is depleted.

In conclusion, the RBI’s intervention reflects a serious response to ongoing non-compliance concerns at Paytm Payments Bank, leading to far-reaching consequences for both the bank and its vast user base.

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