Why RBI restricted services of Paytm payment bank?

The Reserve Bank of India (RBI) has placed substantial business limitations on Paytm Payments Bank. These restrictions prevent the bank from accepting new deposits and carrying out credit transactions beyond February 29. Furthermore, on March 11, the RBI extended these limitations, forbidding Paytm Payments Bank from adding new customers.

The directives, issued under the authority of section 35A of the Banking Regulation Act, 1949, come after an extensive examination of the payment bank's practices and compliance status.

The RBI has recently issued a directive for Paytm Payments Bank Ltd (PPBL) to cease the onboarding of new customers with immediate effect. This decision was taken in light of a report from external auditors that highlighted ongoing non-compliance and significant supervisory concerns within the bank.

The RBI’s decision was based on the findings of a Comprehensive System Audit report and a subsequent compliance validation report from external auditors. These reports exposed continuous non-compliance and significant supervisory issues within the bank, necessitating further regulatory action.

What Rules did Paytm break?

The Reserve Bank of India (RBI) took action against Paytm Payments Bank following a comprehensive system audit report and subsequent compliance validation report from external auditors. The reports revealed persistent non-compliance and continued material supervisory concerns in the bank, which warranted further supervisory action, according to a statement from the RBI.

The Reserve Bank of India (RBI) states that Paytm Payments Bank has violated several regulatory guidelines. This regulatory action has come after an initial directive dated March 11, 2022, in which the RBI ordered Paytm Payments Bank to stop the onboarding of new customers.

Before the announcement from the Reserve Bank of India (RBI), shares of One97 Communications, Paytm’s parent company, remained steady at ₹761 per share on the BSE.

What is the Payment Bank allowed to do

Paytm Payments Bank has the permission to deposit interest, cashback, or refunds into the accounts of its customers.

Furthermore, current customers have the freedom to withdraw or use their balances without any restrictions across various accounts and instruments. These include savings bank accounts, prepaid instruments, FASTags, and National Common Mobility Cards (NCMC).

It also stated that all pipeline transactions and nodal accounts (in respect of all transactions initiated on or before February 29) must complete their settlement by March 15, and it will not permit any further transactions thereafter.

Payment banks can accept deposits up to Rs. 2,00,000 in savings and current accounts. They invest 75% of these deposits in secure government securities as Statutory Liquidity Ratio (SLR) and keep the remaining 25% as time deposits with other scheduled commercial banks.

Payment banks are permitted to facilitate personal payments, receive cross-border remittances, and issue debit cards for their customers.

Which services of Paytm will be affected?

After February 29, Paytm Payments Bank will no longer accept additional deposits, credit transactions, or top-ups in any customer accounts, prepaid instruments, wallets, FASTags, or National Common Mobility Cards.

Customers can withdraw money from their accounts, but they cannot make any more deposits. They can still use the existing funds in their FASTags, wallets, savings accounts, current accounts, etc.

From February 29 onwards, the bank is prohibited from offering services like fund transfers, regardless of the service type. Additionally, customers will not have access to the bank’s UPI facility.

The RBI grants payment banks a 'differentiated' bank license, which prohibits them from lending. They cannot issue credit cards. They are also prohibited from accepting time deposits or deposits from Non-Resident Indians (NRIs).

Furthermore, they cannot provide loans. Lastly, they are not permitted to establish subsidiaries to carry out non-banking financial activities.

Payment banks cannot issue credit cards. It cannot accept time deposits or NRI deposits, and PayTM cannot issue loans. It cannot set up subsidiaries to undertake non-banking financial activities

The Reserve Bank of India (RBI) has terminated the nodal accounts of One97 Communications Ltd, Paytm’s parent company, and Paytm Payments Bank.

All transactions initiated on or before February 29 must complete all settlements by March 15, after which no further transactions will be permissible.

What Paytm users should do now?

The central bank also stated that it will not permit either debit or credit transactions, including those through wallets. However, it allows customers to withdraw without any restrictions, according to the announcement.

They permit the withdrawal or utilisation of balances across their Paytm wallet and Payment Bank accounts, etc without any restrictions.

Basically, you won't receive or send any money from your account, but you can access and withdraw whatever balance money you have in your Paytm account.

As per the RBI order, the Paytm Payment Bank cannot offer any banking services to customers after February 29, 2024.

How this will impact the business of Paytm?

The Reserve Bank of India has imposed certain restrictions on Paytm Payments Bank of India, which will bar the platform from onboarding new customer, and limit existing customers from sending or receiving money from their savings accounts after February 29. These restrictions include:

• New customers: Paytm Payments Bank cannot onboard any new customers.
• Deposits: Paytm Payments Bank cannot accept new deposits after February 29, 2024.
• Credit transactions: Paytm Payments Bank cannot perform credit transactions, including via wallets.
• Banking services: Paytm Payments Bank cannot offer any banking services beyond basic account access after February 29, 2024. This includes fund transfers, including via India's popular Unified Payment Interface (UPI) facility.
• All pipeline transactions and nodal accounts must settle pipeline transactions by March 15, 2024. After that date, they will not permit any further transactions.

Payment banks are registered as a public limited company under the Companies Act, 2013, and licensed under Section 22 of the Banking Regulation Act, 1949.

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