What are the allegations imposed on Paytm Payments Bank by RBI?


By Ashutosh Vinay

Published on: February 10, 2024 at 14:00 IST

Paytm Payments Bank, a well-known digital payments platform, is currently making headlines and grabbing attention. There have been speculations and rumors circulating that Paytm Payments Bank might cease to function after the 29th of February, 2024.

In this Article we will be addressing a burning question regarding Paytm Payments Bank and its future. The question on everyone’s mind is, will this popular banking service cease operations after February 29, 2024? while Paytm Payments Bank isn’t actually shutting down entirely. However, it is facing significant restrictions imposed by the Reserve Bank of India (RBI) due to compliance issues.

Paytm Payments Bank was established in 2017 with the aim of providing easy and accessible banking services to the masses, with a particular focus on the unbanked population of India. The popular digital payment platform, Paytm, recognized the need for accessible banking services and thus ventured into the world of payments banking.

When in 2015, RBI announced for a new category of banks ‘Payments Bank’. Paytm applied for the license. However, it would not grant them the same privileges as a full-fledged bank. They could not make large deposits or lend money. If the bank persists for about 5 years, then it will have an option to be converted into a small finance bank.

Initially Paytm Payments Bank was attracting a significant number of customers, who were drawn to its zero balance savings accounts, competitive interest rates, and convenient digital services. But as time passed it got into heated issues with the RBI.

The Reserve Bank of India (RBI) imposed restrictions on Paytm Payments Bank (PPBL) due to “persistent non-compliances and material supervisory concerns.” These concerns stemmed from two main areas:

1. Money Laundering Concerns:

  • Multiple accounts linked to single PANs: This raised concerns about potential misuse of the platform for money laundering activities.
  • Questionable dealings: Allegations of hundreds of crores of rupees flowing between Paytm and PPBL in an unorthodox manner further fueled anxieties.

2. Know Your Customer (KYC) Non-Compliance:

  • Irregularities in KYC practices: This exposed customers, depositors, and wallet holders to financial risks.
  • Incomplete and false compliances: PPBL submitted reports deemed insufficient and inaccurate by the RBI, demonstrating negligence in addressing the issue.

In light of previous penalties imposed on Paytm Payments Bank Limited (PPBL) by the Reserve Bank of India (RBI) for previous Know Your Customer (KYC) infractions, there appears to be a recurring pattern of non-compliance.

Furthermore, an external audit conducted in response to these concerns validated the severity of the non-compliances, prompting the RBI to take action.

RBI Action against paytm

As a response to these concerns, the RBI has imposed stringent restrictions on PPBL, preventing the bank from accepting new deposits, conducting credit transactions, and topping up accounts (including wallets and cards). This move is expected to significantly impact Paytm’s annual EBITDA.

PPBL is actively working towards compliance and implementing necessary changes. The future of the imposed restrictions is contingent upon the progress made by PPBL and their cooperation with regulatory authorities.

On 31st of January, RBI issued a circular to Paytm Payments Bank stating its ban from accepting any new deposits into its Payments Bank accounts, digital wallets, and even FASTags. No deposits, no top-ups, nothing can happen after the 29th of February.

However, customers can still avail facilities like withdrawal of money or spending it through UPI payments without any new restrictions.

This news has created a sense of panic and uncertainty among Paytm users who heavily rely on the banking services provided by the platform.

However, it’s essential to separate fact from fiction and get a clearer picture of the situation.

As a result of these allegations, PPBL is now prohibited from accepting new deposits, conducting credit transactions, and topping up accounts, including wallets and cards.

The financial implications for Paytm are significant, with the company anticipating an impact on its annual EBITDA ranging from Rs 300-500 crore.

Additionally, the Enforcement Directorate (ED) is currently investigating potential money laundering activities associated with these allegations, adding further complexity to the situation.

It is important to note that these are allegations, and investigations are ongoing.

Unfortunately, Paytm Payments Bank (PPBL) hasn’t officially used the term “ban” to describe the RBI’s actions. Instead, they have referred to it as “supervisory action” or “restrictions imposed by the RBI.”

Here’s what Paytm has said about the RBI’s actions:

Official Statement:

“Paytm Payments Bank Limited (PPBL) is fully cooperating with the RBI in addressing the concerns raised and is taking all necessary steps to comply with the regulatory requirements. We are committed to providing a safe and secure platform for our customers and will continue to work diligently to regain the confidence of the regulator.”

Additional information from Paytm:

  • They acknowledge the RBI’s concerns and are taking steps to address them.
  • They emphasize their commitment to regulatory compliance and customer safety.
  • They express their intent to regain the RBI’s confidence.

Vijay Shekhar Sharma, Paytm’s founder, has also spoken about the issue. He acknowledged the difficulties and expressed their commitment to resolving them. He emphasized their dedication to serving the nation and building a better financial ecosystem.

Current situation:

  • PPBL is working on addressing the RBI’s concerns and implementing necessary changes.
  • The future of the restrictions depends on PPBL’s compliance and cooperation with the RBI.

Paytm Payments Bank remains committed to its customers and aims to provide uninterrupted services. With their vast user base and solid financial backing, they are determined to overcome the mentioned hurdles with resilience and perseverance.

PPBL is actively working on addressing the RBI’s concerns and implementing necessary changes. The future of the restrictions depends on the bank’s compliance and cooperation with the RBI. Despite the challenges, Paytm Payments Bank remains committed to providing uninterrupted services to its vast user base.

In this period of uncertainty, it is essential for users and stakeholders to stay informed through official sources. The evolving situation underscores the need for clarity and transparency in addressing regulatory concerns, ensuring the resilience and perseverance of Paytm Payments Bank in the face of challenges.

Edited By: Bharti Verma, Associate Editor, Law Insider

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