Paytm Payments Bank has been asked by the Reserve Bank of India to halt onboarding of any new customers, effective immediately.
Additionally, the Reserve Bank of India has also directed Paytm Payments Bank to appoint an IT audit firm for a system audit of its IT system. Once the RBI receives the report of the IT auditors, the onboarding of new customers by Paytm Payments Bank will be subject to specific permission to be granted by the RBI. According to the RBI, this step was taken after various material supervisory issues were observed at the Paytm Payments Bank.
This comes even as Paytm Payments Bank is reportedly looking to approach RBI for a small finance bank (SFB) licence by June.
More details were not given, but we do know that this action has been imposed under Section 35A of the Banking Regulation Act. The same gives the RBI the authority to prevent the affairs of any banking company in a manner that is detrimental to the interest of depositors.
As per the guidelines of the RBI, payments banks operating in India cannot accept fixed or recurring deposits. Additionally, they cannot accept demand deposits that exceed ₹1 lakh per customer (there is no such limit for commercial banks, and other banks can accept all kinds of deposits) or extend loans from their balance sheet.
Paytm Payments Bank has been on the scene for quite some time – the Noida-headquartered Indian payments bank was founded in 2015, but it was in 2017 that it was launched and it received the license to run a payments bank from the RBI. Today, its (and Paytm’s) founder Vijay Shekhar Sharma has a stake of 51% in the payments bank.
This is certainly not the first time that the payments bank has faced the music of the RBI – you may remember that the RBI had taken a similar action back in 2018. Some of the reasons were the bank’s failure to maintain the ₹100 crores net worth requirement, and not adhering to the ₹1 lakh deposit limit permitted per account. Later in 2021, a penalty was imposed on the payments bank for violating certain rules.
Today, Paytm Payments Bank claims to add 0.4 million users every month and has 100 million KYCed customers. In FY21, its revenue came in at ₹1,987.45 crores.