The Reserve Bank of India (RBI) has widened its restrictions on Paytm’s Payments Bank, which processes transactions for financial services giant Paytm, preventing it from offering many banking services, including accepting new deposits and credit transactions on its services.
Wednesday’s move, which takes effect on February 29, follows India’s central bank’s order to stop accepting new customer accounts in 2022, which the central bank maintains. The RBI said a comprehensive audit by external auditors found “persistent” non-compliances and “ongoing significant supervisory concerns” at the bank. The non-compliance, the RBI said, warranted “further supervisory action”.
The full extent of RBI’s new direction remains unclear for now, but industry executives warned that it could seriously disrupt Paytm’s offline merchant business as well as its gateway business. The new RBI directive “for all practical purposes . . . terminates operations of Paytm Payments Bank,” Bernstein analysts wrote in a note. “This is a clear negative development and adds to the already heavy regulatory overhang of the business.”
One97 Communications, the parent company of Paytm, holds a 49% stake in Payment Payments Bank. A payments bank license allows the holder to offer a number of banking services, although there are some restrictions.
RBI has also taken a swipe at One97 Communications and Paytm Payments Services terminate their hub accounts “the earliest”. Without the hub account, Paytm will likely have to shift much of its business to other banks, according to a preliminary assessment by industry executives.
“Settlement of all pipeline and hub account transactions (in respect of all transactions initiated on or before February 29, 2024) will be completed by March 15, 2024 and no further transactions will be permitted thereafter,” RBI added.
Customers can continue to withdraw and use funds from their accounts, RBI said. Paytm Payments Bank will also not be allowed to offer credit transactions, including through wallets, the RBI said.
In 2022, the RBI sanctioned Paytm Payments Bank after it found that the Noida-based company had violated rules by allowing data to flow to servers outside India and not properly verifying its customers.
