Paytm Payments Bank Faces Uncertain Future as RBI Bars Fresh Deposits

Paytm Payments Bank (PPBL) is in a state of uncertainty as the Reserve Bank of India (RBI) has decided to prohibit fresh deposits and top-ups, effective from February 29, 2024. One97 Communications, the company behind Paytm services, has also stopped all businesses with PPBL. While the RBI has not explicitly stated that it will cancel Paytm’s license for the payments bank, there are concerns among banking sources regarding the possibility of license cancellation after the deadline.

The sources suggest that PPBL is likely to experience a decline in deposits and business due to the recent developments, which could ultimately lead to license cancellation. The RBI’s guidelines state that the aggregate customer balance limit for PPBL customers cannot exceed Rs 2 lakh, but neither PPBL nor One97 Communications has disclosed the deposit base of PPBL. The RBI’s decision comes after persistent non-compliances and supervisory concerns were found in the bank’s audit reports.

PPBL’s board, which included banking veterans such as AK Jain and Manju Agarwal, failed to ensure compliance with RBI’s norms over the years. The bank’s non-compliance issues included KYC and data sharing concerns. In October 2023, Paytm was penalized for various regulatory breaches, including failure to identify beneficial owners, breaching regulatory balance ceilings, and delayed reporting of a cyber security incident.

Following the RBI directive, customers will no longer be able to make deposits or add money to their PPBL accounts after February 29, 2024. However, there are no restrictions on withdrawing money from existing balances. Paytm has assured customers that their money is safe and that the disruption in business will only last for a few weeks. The company is working on operational changes and ensuring a smooth transition for customers to switch to other bank accounts.

Paytm denies any data sharing between Paytm and PPBL, but acknowledges that customer data for Paytm Payments Bank resides with PPBL. Paytm has stated that all models and business operations were built on insights available within the Paytm app or data that Paytm is legally allowed to consume. Paytm founder Vijay Shekhar Sharma, who is also the Chairman of OCL and PPBL, claims that a Chinese wall has been established between the two entities.

Paytm is currently in discussions with relevant authorities, including the RBI and NPCI, to facilitate the transition and migration of accounts. The company is confident that it will return to full normalcy by early March. In the meantime, the Paytm issue is expected to have an impact on the valuation of other fintech players, as trust and compliance concerns arise within the industry.

Paytm Payments Bank currently has over 30 crore wallets and 3 crore bank accounts, making it one of the largest players in the Indian payments banking sector. It also holds the title for being the largest issuer of FASTag with over 80 lakh units issued.