Paytm Payments Bank, a subsidiary of One 97 Communications Limited, has been barred by the Reserve Bank of India (RBI) from accepting deposits or top-ups to its accounts and services due to “persistent non-compliance and continued material supervisory concerns in the bank”. The ban will be effective from February 29, 2024 and will also prevent the bank from onboarding new users.
What are the reasons for the ban?
According to media reports, the RBI had found several irregularities and violations in the operations of Paytm Payments Bank during its inspection. Some of these include:
- Out of 35 crore Paytm Wallets, 31 crore were inoperative, indicating a lack of customer engagement and verification.
- A single PAN card was linked to thousands of accounts, raising questions about the identity and source of funds of the customers.
- There was an absence of KYC (know your customer) for lakhs of accounts and violation of KYC-anti money laundering rules.
- The bank had failed to maintain the minimum net worth requirement of Rs 100 crore as per the RBI guidelines.
What are the implications of the ban?
The ban on Paytm Payments Bank will have a significant impact on its customers, partners and shareholders. Some of the possible implications are:
- Customers who have money in their Paytm Payments Bank accounts or wallets will not be able to add more money to them after February 29. They can only transfer their existing balance to another bank account through options like UPI, IMPS or RTGS. However, this may incur a transaction fee of 3 per cent.
- Customers who use Paytm-linked services like FASTags, NCMC cards, UPI handles, etc. will also face inconvenience as they will not be able to recharge or top-up their accounts after February 29. They may have to switch to alternative options offered by other banks or service providers.
- Partners who rely on Paytm Payments Bank for distributing payments and financial services products will also be affected by the ban. They may have to look for other third-party banks to collaborate with or lose their business opportunities.
- Shareholders of Paytm Payments Bank and One 97 Communications Limited will also suffer losses as the ban will erode the value and reputation of the bank. The stock price of One 97 Communications Limited plunged by 20 per cent on February 1 after the announcement of the ban.
How is Paytm Payments Bank responding to the ban?
Paytm Payments Bank has issued a statement saying that it is actively working to address the RBI’s concerns and ensure compliance. It has also assured its customers that their deposits are safe and secure and that their services will remain uninterrupted. It has also said that it will expand its existing relationships with leading third-party banks to distribute payments and financial services products.
Paytm Payments Bank was launched in 2017 as a digital-only bank that offers savings accounts, current accounts, debit cards, mobile wallets, FASTags, NCMC cards, etc. It claims to have over 64 million customers and over Rs 2000 crore in deposits. It is one of the six payments banks licensed by the RBI in India.
The ban on Paytm Payments Bank is a serious setback for the bank and its parent company One 97 Communications Limited, which is also planning to launch an initial public offering (IPO) later this year. The ban may affect the valuation and prospects of the IPO and also dent the confidence of investors and customers in the company.