Paytm, India’s leading digital payments firm, has seen its market value erode by $2.5 billion since the Reserve Bank of India (RBI) cracked down on its payments bank arm over multiple violations of licensing conditions and anti-money laundering rules . The company’s shares have hit the lower circuit for three consecutive days, closing at Rs 1,050.05 on Monday, down 20 percent from its listing price of Rs 1,315 on 18 November 2021.
The RBI’s action against Paytm Payments Bank Ltd (PPBL) came as a shock to the investors and customers of the fintech giant, which had raised $2.4 billion in India’s biggest initial public offering (IPO) last year. The central bank has ordered PPBL to stop accepting deposits or top-ups in customer accounts, wallets, FASTags, National Common Mobility Cards, and other instruments after 29 February 2024. It has also directed PPBL to terminate the nodal accounts of its promoter group companies, One97 Communications Ltd and Paytm Payment Services Ltd, by the same date.
The RBI’s move was based on the findings of a comprehensive system audit and subsequent compliance validation report of the external auditors, which revealed persistent non-compliances and continued material supervisory concerns in PPBL. According to media reports, some of the major issues that led to the RBI’s crackdown were:
- Hundreds of thousands of accounts at PPBL were created without proper identification, raising money laundering concerns .
- A single PAN card was linked to thousands of accounts in some cases, violating the norms of one customer-one account.
- PPBL had submitted false information and compliance reports to the RBI on several occasions, concealing its lapses and irregularities .
- PPBL’s financial and non-financial business was co-mingled with its promoter group companies, in breach of the licensing conditions that require payments banks to operate independently.
The RBI’s action has cast a shadow over Paytm’s future growth prospects, as PPBL was a key driver of its revenue and customer acquisition. PPBL had over 64 million customers as of March 2021, with deposits of over Rs 2,000 crore. It also had a market share of 40 percent in FASTag transactions, which are used for electronic toll collection on highways. PPBL’s suspension will affect not only its existing customers, but also its potential new customers who may opt for other digital payment platforms.
Paytm has denied facing any money laundering probe by the Enforcement Directorate (ED) or any other agency, and has claimed that it is working closely with the RBI to resolve the issues at PPBL. It has also assured its customers that their money is safe and that they can continue to use their wallets and other services without any restrictions until 29 February 2024. However, analysts have warned that Paytm’s brand image and credibility have taken a hit due to the RBI’s action, and that it will have to work hard to regain the trust of its stakeholders.