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RBI barred Paytm Payment Bank from Banking Activities

By News Canvass | Feb 05, 2024

  • “Paytm mat karo” says RBI as the Payment Bank has failed to follow important guidelines. As per the RBI’s licensing and operative guidelines for payments bank, aggregate customer balance limit for PPBL customer at the end of the day cannot exceed Rs 2 lakh. Neither PPBL nor Paytm has disclosed the deposit base of PPBL.
  • A mail sent to One97 Communications Ltd did not elicit any response. The Comprehensive System Audit report and subsequent compliance validation report of the external auditors revealed persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action.
  • Paytm failed to identify beneficial owner in respect of entities on boarded by it for providing payout services, did not monitor payout transactions and carry out risk profiling of entities availing payout services, breached the regulatory ceiling of end-of-the-day balance in certain customer advance accounts, and even delayed reporting a cyber security incident. One97 Communications owns 49 per cent in PPBL and Paytm founder and Chairman Vijay Shekhar Sharma has 51 per cent stake.

What were the imposed restrictions?

  • The restrictions imposed on the lending arm encompass a suspension of deposits, credit transactions, fund transfers, and top-ups. Services, like repaid instruments, wallets, FASTags, and National Common Mobility Cards, will also face a pause in operations. However, interest, cashback, and refunds will still be credited, with accounts remaining accessible solely for withdrawals or usage.
  • Banking services like bill payments and UPI, will cease in the upcoming month. Nodal Accounts managed by the parent company, OCL, and Paytm Payments Services will be closed by February 29, with all pending transactions and nodal accounts settled by March 15.

What caused these regulatory woes?

  • While the lending arm has been granted a one-month period to cease operational services, this isn’t the company’s first brush with regulatory concerns. 
  • Since the inception of PPBL in 2017, regulatory issues have plagued the company’s journey repeatedly. From failing to comply with KYC guidelines to suspending the creation of new accounts, Paytm has faced several regulatory hurdles. The recent RBI notice specifically mentioned non-compliance and supervisory concerns. Paytm indicated that it anticipates a potential worst-case impact of Rs 300 to Rs 500 crore on its annual EBITDA moving forward.

Can customers withdraw or deposit money??

  • As per the RBI directive, customers will not be able to make deposits or add money to your Paytm Payments Bank savings, current account, debit card, NCMC, transit and FASTagafter February 29, 2024. However, there is no restriction on withdrawal of money from the existing balance even after February 29, 2024
  • On the other hand, parent Paytm said the disruption of business will continue for a few weeks. There are some operational changes, which will take it a week or two to do before we can kick-start the new business back again, it said. And then the existing business is just about making sure that the people who had set up their mandates from PPBL bank account are able to switch to another bank account, which work has already started.
  • One97 Communications, in a filing to exchanges on Sunday, denied any involvement in anti-money laundering activities. “Neither the Company nor its founder and CEO are being investigated by the Enforcement Directorate regarding inter alia money laundering. We have and continue to abide by Indian laws and take regulatory orders with utmost seriousness,” the company said.

PPBL has 3 crore bank accounts

  • Paytm Payment Bank has over 30 crore wallets and 3 crore bank accounts, as per the information on the bank’s website. It has over 10 crore KYC customers, with 4 lakh users added every passing month.
  • The bank is the largest issuer of FASTag with over 80 lakh FASTag units issued. A payment bank can raise deposit up to Rs two lakh but it can’t issue loans or credit cards.

What’s now for the company?

  • PPBL has paused its primary services like deposits and credit transactions, fueling concerns about layoffs in the company. However Vijay Shekhar Sharma reassured the employees of the lending arm that there would be no job cuts.
  • He further said that there are ongoing discussions with the RBI and other bank partnerships. As the company continues to encounter challenges, people may seek alternatives in the digital payment space, yet the debate over loosening regulations for fintech space remains a headline question.

Paytm Shares Drop After RBI Action

  • Digital payments firm Paytm lost a fifth of its market value on Thursday after the RBI’s action against its associate Paytm Payments Bank. Paytm’s stock fell to a six-week low of ₹ 609, erasing around $1.2 billion in value from the company.
  • The stock was down 20%, at the bottom of its exchange-imposed daily trading band. Paytm said it expects a “worst case impact” of ₹ 300 crore to ₹ 500 crore to its annual earnings from RBI’s order. The company also said it is taking “immediate steps” to comply with the RBI’s directions and that it expects to “continue on its trajectory” to improve its profitability.

Paytm Money: Are your investments safe? 

  • Many Paytm Money customers are understandably worried about their investments in the wake of the RBI’s decision to suspend certain activities of Paytm Payments Bank owing to ongoing substantial supervisory concerns and continuous non-compliances, which require additional supervisory action.
  • To ease the customers’ worries, Paytm Money, in a mail to its investors, said that the Paytm Payments Bank Ltd (PPBL) does not have any impact on the operations of Paytm Money Ltd (PML) and has no impact on your investments with PML in Equity, Mutual Funds or NPS.

Paytm Money has highlighted the below points for their investors

  1. PML is regulated by SEBI and is fully compliant to all regulations and policies
  2. Your equity, bonds, ETFs are all secured in your CDSL Demat Account and consequently are always safe and transactions as you are aware can only be done with your authorization
  3. Your Mutual Fund/SIP investments are with respective AMCs and are also safe. You can continue to invest/redeem as usual
  4. Funds that are transferred to PML’s trading account are up-streamed (transferred) to Indian Clearing Corporation Ltd (ICCL) of BSE as per SEBI regulations, and thus are also safe.

 For investors whose default is Paytm Payments Bank

  • According to the Paytm Money mail, “For investors who have set PPBL as their default account, you will need to change it before 29th February 2024 with a simple addition of an alternate bank. We shall communicate the specific process for the same separately and help you get this done.
  • We appreciate your continued trust and support. If you have any questions, please do not hesitate to contact us at” Paytm founder Vijay Shekhar Sharma took to X and stated: “To every Paytmer,” Sharma wrote, addressing the platform’s user base directly.
  • “Your favourite app is working, will keep working beyond 29th February as usual.”

Paytm, pushed the system too far?

  • SoftBank Group-backed Paytm has remained under RBI’s regulatory scanner for the last two years. Two years ago RBI asked Paytm to not acquire new customers, the primary issue being a lack of compliance with Know Your Customer (KYC) norms. Poor KYC adherence can lead to a surge in financial frauds, an additional headache for investigative agencies as it can lead to digital dead-ends.
  • A case of one account linked to one PAN number operating over Following multiple warnings, the central bank asked the fintech company to stop its mobile wallet business citing persistent non-compliance and supervisory concerns.
  • RBI’s technical audit into the functioning of the fintech found money and data traffic flows between Paytm Payments Bank and the rest of the Paytm universe that created accounting and supervisory problems. Furthermore, RBI was also reportedly uncomfortable with management overlap.
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