Understanding the RBI’s Measures on Paytm Payments Bank Restrictions

The Reserve Bank of India (RBI) has taken significant regulatory action against Paytm Payments Bank Ltd, citing ongoing material supervisory concerns and persistent non-compliances. In an official statement released on Wednesday, the apex bank announced that Paytm Payments Bank is prohibited from accepting fresh deposits and engaging in credit transactions.

The decision means that, effective February 29, 2024, Paytm Payments Bank will no longer be able to take in new deposits or conduct credit transactions, including those through its wallets. The RBI emphasized that these measures were necessary due to the bank’s failure to address compliance issues adequately.

One 97 Communications Ltd, headquartered in Noida, is the parent company of Paytm Payments Bank, holding a 49 percent stake. Despite the regulatory action, existing customers of the bank can still withdraw or utilize their current balances without any restrictions.

Fundamental services such as fund transfers, including through India’s popular Unified Payment Interface (UPI), will be halted. Notably, nodal accounts of One97 Communications Ltd and Paytm Payments Services are slated for termination by February 29.

Additionally, the bank will be barred from activities such as topping up customer accounts, prepaid instruments, wallets, and cards for paying road tolls. However, the bank retains the ability to credit interest, cashbacks, or refunds into customer accounts.

While the restrictions primarily affect services linked to the payments bank accounts, it is unlikely to impact Paytm’s wallet application and UPI services linked to accounts of other banks after the RBI’s deadline.

The RBI did not disclose a specific timeline for reviewing these restrictions, leaving the duration of the supervisory measures uncertain. This development follows actions taken nearly two years ago when the regulator prohibited Paytm Payments Bank from acquiring new customers due to rule violations, as reported by Bloomberg News. Founder Vijay Shekhar Sharma had contested the allegations at that time, asserting the bank’s full compliance with Indian regulations.