RBI Mulls Cancelling Paytm Payments Bank License Amidst Regulatory Breaches

7 Feb 2024 , 02:51 PM

The RBI is considering canceling Paytm Payments Bank’s license after the March 15 deadline. Anonymous sources indicate that the RBI’s intention is to cancel the license due to non-compliance issues.

The RBI has directed the payment bank to settle all pipeline transactions and nodal accounts by March 15, with no further transactions permitted thereafter.

The banking regulator sees license cancellation as a logical step, given repeated non-compliance issues, leading the RBI to impose major business restrictions and effectively cease operations by February 29.

A final decision on license cancellation is expected in the coming days. Paytm’s promoter, Vijay Shekhar Sharma, reportedly met with Finance Minister Nirmala Sitharaman, and discussions were held with RBI officials.

Separate reports suggest the RBI is considering superseding Paytm Payments Bank.

On January 31, the RBI imposed significant business restrictions, including halting fresh deposits and credit transactions after February 29.

The RBI’s Comprehensive System Audit report uncovered persistent non-compliances and supervisory concerns, leading to further regulatory action.

Customers can withdraw or utilize balances without restrictions until the available balance is exhausted, even after February 29.

Since March 11, 2023, Paytm Payments Bank has been barred from onboarding new customers.

On February 6, the stock of One 97 Communications, Paytm’s parent company, closed at ₹463 on the National Stock Exchange, rebounding by 2.63% after a previous 40% decline. At the time of writing, Paytm shares were trading at ₹496.25 which is a 10.00% increase than previous close

The RBI’s clampdown aims to protect the financial system and prevent a payment bank from operating detrimentally to the interests of depositors, customers, and stakeholders.

The RBI found significant irregularities in KYC processes, exposing customers to risks, including the absence of KYC for a large number of customers, PAN validation failures, and single PAN linked to multiple customers.

Regulatory limits in minimum KYC pre-paid instruments were breached, raising money-laundering concerns. The RBI discovered unusually high numbers of dormant accounts prone to misuse.

The RBI identified co-mingling of PPBL’s financial and non-financial business with its promoter group companies, violating licensing conditions and RBI directives.

Paytm is taking immediate steps to comply with RBI directions and address concerns. The estimated worst-case impact on annual EBITDA is Rs 300-500 crore, with an expectation to continue improving profitability.

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