The Reserve Bank of India (RBI) has imposed restrictions on Paytm Payments Bank under Section 35A of the Banking Regulation Act, 1949, barring them from accepting new deposits or enabling any credit transactions after February 2024.
This restriction effectively prevents Paytm from providing payments to the bank. The core financial services related to customer accounts and digital wallets were their core offerings. Although the RBI order does not officially cancel the license of Paytm Payments Bank, it severely reduces the scale and scope of their banking operations by preventing access to critical capabilities.
Major developments
- Restrictions on banking operations: RBI directive bars Paytm Payments Bank from accepting fresh deposits, credit transactions or top-ups in customer accounts, including wallets and prepaid instruments like Fastag, after February 29.
- Continued app operations, limited Paytm Bank services: While the Paytm app is expected to continue normal operations, Paytm Bank related services will be available only till February 29 or till the available balance is exhausted.
- Termination of Nodal Accounts: The nodal accounts of Paytm's parent company, One97 Communications Limited and Paytm Payments Bank Limited have been terminated by the central bank as part of regulatory measures.
- Previous regulatory actions: This latest action follows a previous RBI order in March 2022, which directed Paytm Payments Bank to immediately stop onboarding new customers. The decision was taken due to concerns over the bank's compliance with regulatory standards.
- Comprehensive System Audit Findings: The RBI decision is based on the findings of a comprehensive system audit report and subsequent compliance verification report by external auditors, which highlighted persistent non-compliance and ongoing supervisory concerns.
- Withdrawal and Utilization of Balance: Customers are allowed to withdraw or utilize up to the available balance from their accounts including savings and current accounts, prepaid instruments, Fastag, National Common Mobility Card etc. without any restriction.
- Restrictions on banking services: After February 29, 2024, Paytm Payments Bank is restricted from providing any banking services other than balance withdrawal or utilization. This includes fund transfer, BBPOU and UPI facilities.
- Termination of nodal accounts: RBI has directed for immediate termination of nodal accounts of One97 Communications Limited and Paytm Payments Services Limited, which will be completed before February 29, 2024.
- Settlement of Pipeline Transactions: It is mandatory for the Payments Bank to settle all pipeline transactions and nodal accounts by March 15, no transactions are allowed after this date.
- Company response: As of now, neither Paytm Payments Bank nor its Founder/CEO Vijay Shekhar Sharma has issued any response to the RBI action.
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