The Reserve Bank of India is discussing more sanctions on Paytm Payments Bank and may reach a decision within days, two sources familiar with the matter told TechCrunch, as problems mount for the Indian financial services company that serves more than 330 million customers.
The central bank has discussed internally revoking payments bank Paytm’s license, the sources said, requesting anonymity as they are not authorized to speak to the press. The RBI did not respond to a request for comment early Thursday.
In one of its most strongly worded letters, the RBI on Wednesday ordered fresh restrictions on Paytm Payments Bank, effectively ensuring that the Payments Bank is no longer operating most of its businesses in less than six weeks.
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. The RBI said on Wednesday that 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 decision follows the central bank summoning two Paytm officials to its office in recent weeks over compliance issues, a source said.
Paytm on Thursday said it will stop working with Paytm Payments Bank and explore tie-ups with other banks for many of its financial services. A payments bank license allows the holder to offer basic banking services, such as accepting customer deposits up to $2,400. Paytm “will only work with other banks and not with Paytm Payments Bank Limited,” the company disclosed to the stock exchange on Thursday.
Shares of Paytm plunged 20% within minutes of opening trading on Thursday, hitting a circuit low that halted trading for the day. Paytm’s stock ended at 608.8 Indian rupees, or $7.3, less than two-thirds of its issue price.
The RBI’s notice has come as a shock to the Indian fintech industry, which has already been hit by several regulatory clarifications in recent years. In December, Paytm said it would issue fewer personal loans under 50,000 Indian rupees ($600) after the RBI tightened rules on consumer loans and publicly expressed concerns about bad, tiny personal loans.
Analysts at Macquarie, known for best calls on Paytm, said: “We have seen the RBI taking around 15 months to lift its ban on the digital business of the largest private sector bank. However, in this case since the first ban (in March 2022) on entry of new customers (about 22 months have passed), RBI has conducted a comprehensive IT audit and has continued to find non-compliance, which in our view indicates that these gaps are material enough.”
One97 Communications, the parent company of Paytm, holds a 49% stake in Payment Payments Bank, while the remaining equity is held by Paytm founder Vijay Shekhar Sharma. RBI gave final payments bank approval to Paytm in early 2017.
