EDEN IAS

RBI ACTION AGAINST PAYTM PAYMENTS BANK

RBI ACTION AGAINST PAYTM PAYMENTS BANK

Introduction to RBI ACTION AGAINST PAYTM PAYMENTS BANK:

The Reserve Bank of India on Wednesday barred Action Against Paytm Payments Bank Ltd from accepting fresh deposits and making credit transactions. India’s apex bank said in a statement that the action was precipitate by the bank’s “persistent non-compliances”

The RBI said the Paytm Payments Bank’s continue material supervisory concerns warranted supervisory action. The apex bank didn’t reveal any timeline for reviewing the restrictions. Noida-based One 97 Communications Ltd is the parent company of the Paytm Payments Bank. It holds 49 percent stake in the company.

HOW WILL THIS ACTION AFFECT CUSTOMERS?

  • Paytm Payments Bank now cannot take deposits after February 29. It will not be able to perform credit transactions, including via This means the bank won’t be able to credit loan money to customers through its accounts or wallets. However, customers can withdraw or utilise their existing balances without restrictions.
  • The bank will not be allow to offer fund transfers, including via India’s popular Unified Payment Interface. This means if a person wants to transfer the balance in the Paytm Payments Bank through UPI, she won’t be able to do so

The RBI said the nodal accounts of One97 Communications Ltd and Paytm Payments Services to be terminate at the earliest and not later than February 29.

WHAT OTHER MEASURES THIS ORGANIZATION BARRE FROM INDULGING TO?

  • The bank will be barre from activities like topping up any customer accounts, prepaid instruments, wallets, cards for paying road tolls. The bank, however, can credit interest, cashbacks or refunds in the accounts of customers.
  • Withdrawal or utilisation of balances by its customers from their accounts including savings bank accounts, current accounts, prepaid instruments, FASTags, National Common Mobility Cards, will be permit without any restrictions, up-to their available balance. This means customers will not be able to top up these services with fresh funds but can use existing balances
  • No further deposits or credit transactions or top ups shall be allows in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024, other than any interest, cashbacks, or refunds which may be credit anytime, it said.
  • It’s unlikely that Paytm’s wallet application and UPI services link to the accounts of other banks will be impacts after RBI’s deadline. Only the services link to the payments bank accounts likely to be impact.

WHAT IS PAYTM PAYMENT BANK?

Paytm Payments Bank is a specialised banking entity that received its license in 2015, the year payment banks were introduced in India, and started operations in November 2017.

Payments bank is a financial services company that cannot accept more than 2 lakh in deposits per account. It is not allowed to lend directly but can sell loan products. It can also promote other third-party loan products. Bharti Airtel set up India’s first payments bank, Airtel Payments Bank.

WHAT OTHER ACTIONS RBI HAS TAKEN AGAINST PAYTM EARLIER?

In October 2023, the RBI had fined Paytm Payments Bank Rs 5.39 crore due to deficiencies in regulatory compliance. According to the regulator, the payments bank had failed to identify the beneficial owner in respect of entities onboarded by it for providing pay-out services; did not monitor pay-out transactions and failed to carry out risk profiling of entities availing pay-out services; had breached the regulatory ceiling of end-of-the-day balance in certain customer advance accounts; and had delayed reporting a cyber security incident.

The RBI also had concerns over the close relationship between Paytm Payments Bank and its parent One97 Communications. Payments banks are required to maintain an arm’s length distance from promoter group entities. OCL held 49% stake in Paytm Payments Bank, while 51% was held by Paytm founder Vijay Shekhar Sharma.

WHY DID RBI IMPOSE CERTAIN ACTIONS OR RESTRICTIONS AGAINST PAYTM BANKS?

The Reserve Bank of India (RBI) acted against Paytm Payments Bank due to persistent non-compliances and continued material supervisory concerns. As a result, the RBI barred Paytm Payments Bank from offering several core services, including accepting deposits, prepaid instruments, wallets, FASTags, and the National Common Mobility Card (NCMC) This decision effectively crippled the company’s business and was a significant blow to Paytm Payments Bank .

In summary, the additional restrictions were imposed by the RBI to address compliance issues and supervisory concerns related to Paytm Payments Bank’s operations.

SourcesTHE HINDU, PIB