RBI’s Action: Paytm Payments Bank to Cease New Deposits from March, Citing Non-Compliance
Paytm Payments Bank: A Promise of Sincerity – “No Fear, No Greed, No Entitlement”.
Since its inception in May 2017, Paytm Payments Bank has not been a stranger to controversy, frequently finding itself at odds with the Reserve Bank of India (RBI). Over the course of its seven-year existence, the bank has encountered numerous run-ins with the regulatory body, resulting in at least five penalties issued by the RBI for non-compliance issues. Despite its relatively short time in operation, Paytm Payments Bank has faced a tumultuous journey marked by regulatory challenges and compliance hurdles.
The recent crackdown by the central bank has left users, merchants, and investors of Paytm Payments Bank in a state of anxiety. Despite this, the Reserve Bank of India (RBI) has not provided specific details regarding the reasons behind the action or the severity of the violations at the payments bank. This lack of clarity from the RBI has further compounded the challenges faced by users and merchants, leaving them in a state of uncertainty.
Following persistent non-compliances and material supervisory concerns, Paytm Payments Bank has been barred from offering nearly all of its core services. Effective February 29, the bank will no longer be able to accept deposits or top-ups in any customer account, nor will it be able to provide services such as prepaid instruments, wallets, FASTags, National Common Mobility Card (NCMC), and more. This stringent action by regulatory authorities underscores the gravity of the situation and highlights the need for immediate remedial measures.
According to RBI data as of December 2023, Paytm Payments Bank boasted an impressive infrastructure with over 7 lakh point of sale (PoS) terminals, 3.52 crore UPI QR codes, and 3.23 crore debit cards. Additionally, the bank’s website reports a substantial user base, including over 30 crore wallets and 3 crore bank accounts. With over 10 crore KYC customers and a steady monthly growth of 4 lakh users, Paytm Payments Bank continues to expand its reach. Notably, the bank also holds the title of being the largest issuer of FASTags, having issued over 80 lakh units to date.
Allegations of money laundering and foreign exchange violations have surfaced against the company, although Paytm has vehemently denied these accusations. A spokesperson for Paytm Payments Bank stated, ‘We are not in a position to comment on the issue as Paytm Payments Bank Limited is under the supervisory engagement of the regulator.’ This response highlights the sensitivity of the matter and underscores the ongoing regulatory oversight facing the bank.
RBI Deputy Governor Swaminathan J emphasized that the current supervisory action taken against Paytm Payments Bank is a result of persistent non-compliance. He explained, “Such supervisory actions are invariably preceded by months and, at times, years of bilateral engagement where we not only point out deficiencies but also provide more than adequate time for them to take corrective action.” This statement underscores the regulatory process preceding the action and highlights the importance of compliance within the banking sector.
Despite the supervisory action taken against Paytm Payments Bank, the RBI has not provided detailed insights into the specific issues that led to the regulatory measures. Furthermore, the central bank has not offered any commentary on its planned course of action following the recent developments. Following inquiries from the Finance Ministry, the RBI has committed to releasing Frequently Asked Questions (FAQs) addressing concerns surrounding its actions sometime in the coming week. This announcement comes approximately two weeks after the initial curbing of operations at the bank, indicating a forthcoming attempt to address public inquiries and provide clarity on the situation.
Bilateral relationship was a term frequently used by RBI officials when addressing questions from the media regarding the future of Paytm. This term underscores the ongoing dialogue and engagement between regulatory authorities and the company, suggesting a collaborative effort to address issues and ensure compliance within the banking sector.
Even in previous actions taken against the payments bank, the regulator has seldom provided detailed insights into the factors that prompted its actions. The RBI’s communication regarding a penalty of Rs 5.4 crore imposed in 2023 was one of the few instances where limited commentary was offered. On that occasion, the regulator cited a breach of KYC (Know Your Customer) guidelines as the reason for the penalty.