On January 31, The Reserve Bank of India (RBI) via its press release note, ordered Paytm Payments Bank (herein thereafter referred to as “the bank”), a wholly-owned subsidiary of fintech major Paytm, to stop accepting deposits or top-ups in any customer account, prepaid instruments, wallets, and FASTags and more after February 29 upon persistent non-compliances and continued material supervisory concerns in the bank. Following this news, the Paytm stock fell around 20% on 1st Feb. thus hitting a lower circuit on the stock exchanges.
Let’s take a deep dive into what happened and the previous instances of RBI’s actions against the Paytm Payments Bank:
The Central Bank has taken this punitive step under Section 35A of the Banking Regulation Act, 1949. Through this decision, RBI aims to curb certain irregularities and continuous non-compliance by the bank. A top executive of the bank said that the recent move by the central bank will have the maximum impact on the merchant payments given Paytm’s large network of merchants as they would have to shift to other players for their QR code, Point of Sales (POS) machines, sound box, and other requirements. However, this is not the first time where an action has been initiated against the bank by RBI. There are several other instances in the past. Let’s take a quick look at the same:
• June 2018: RBI, following an audit, ordered the bank to stop onboarding new customers due to its issues regarding adherence to KYC norms. However, the restriction was later on revoked in January 2019.
• October 2021: RBI imposed a huge fine of ₹1 Crore due to the bank’s non-compliance of laws pertaining to payments and settlements.
• March 2022: RBI again prohibited the bank from onboarding new customers owing to “certain material supervisory concerns observed in the bank”.
• October 2023: The Reserve Bank imposed a fine of ₹5.39 crores for non-compliance with its directions.
What next for the bank’s customers?
Generally, when news such as “Bank restricted to carry on its operations” or “Bank shutting down” hits the market, there is a panic among its customers to withdraw their money from it as they fear of losing their money.
However, in this case, the customers need not worry much as the RBI via its Press Release: 2023-2024/1774 has clarified that though the bank cannot accept deposits or indulge in credit transactions, the customers are permitted to withdraw or utilize their balance amount without any restrictions.