RBI Bars Paytm Payments Bank From Providing UPI Service, Taking Deposits In Customer Accounts

In further trouble for Paytm Payments Bank, the Reserve Bank of India (RBI) has barred it from any deposits or credit transactions, or top-ups in any of its customer accounts.

The central bank in a statement said, “No further deposits or credit transactions or top ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards (National Common Mobility Cards), etc. after February 29, 2024, other than any interest, cashbacks, or refunds which may be credited anytime.”

Under Section 35A of the Banking Regulation Act, 1949, the RBI said that the Nodal Accounts of One97 Communications Ltd and Paytm Payments Services Ltd. are to be terminated at the earliest, in any case by February 29, 2024.

The regulator has taken the step after Paytm Payments Bank’s “persistent non-compliances and continued material supervisory concerns”.

In March 2022, the RBI directed Paytm Payments Bank Ltd to stop onboarding new customers with immediate effect.

However, as per the central bank, the Comprehensive System Audit report and subsequent compliance validation report of the external auditors revealed non-compliance, warranting further supervisory action.

The RBI also said that withdrawal or utilisation of balances by Paytm Payments Bank’s customers from their accounts, including savings bank accounts, current accounts, prepaid instruments, FASTags, and NCMC, would be permitted till their available balance.

The bank cannot provide any other banking services, such as UPI facility and fund transfers after February 29, 2024.

“Settlement of all pipeline transactions and nodal accounts (in respect of all transactions initiated on or before February 29, 2024) shall be completed by March 15, 2024 and no further transactions shall be permitted thereafter,” the RBI added.

It must be noted that in October last year, the RBI had also slapped a penalty of INR 5.39 Cr on Paytm Payments Bank for non-compliance with Know Your Customer (KYC) norms. 

Meanwhile, the company was hopeful about the central bank lifting the customer onboarding restrictions on the platform by March this year. 

Set up in 2017, Paytm Payments Bank is among the top payments banks in the country, providing a mobile banking platform and e-wallet services. Paytm’s parent firm, One97 Communications, holds a 49% stake in Payment Payments Bank.

Brokerage Bernstein in a research note said, “This is a definite negative development and adds to the already heavy regulatory overhang on the business.”

The troubles in Paytm Payments Bank come after Paytm had to scale down its small-ticket loans business in December last year following RBI’s action against unsecured loans, which also impacted the parent entity’s loan business in Q3 FY24.

Meanwhile, Paytm’s application for a payment aggregator licence is also still pending approval from the RBI.

Despite the regulatory challenges, Paytm managed to narrow its net loss by over 43% to INR 222 Cr in Q3 FY24.