RBI action against Paytm Payments Bank Ltd

By Anshuman Gupta, on February 13, 2024

POSTED IN Banking,

Reserve Bank of India (RBI) on January 31, 2024, through a press release[1] directed Paytm Payments Bank Limited (PPBL) to restrict certain banking activities. On March 11, 2022, RBI had erstwhile directed PPBL to restrict itself from onboarding new customers and to conduct a comprehensive system audit of its IT systems (2022 Regulations)[2]. The restrictive action was necessitated by persistent non-compliances and ongoing material supervisory concerns identified in PPBL following the comprehensive system audit of its IT systems, as mandated by the 2022 Regulations.

Highlights of the Press Release

• Restriction on Banking Activities: In addition to the restriction pertaining to the onboarding of new customers, RBI has further curtailed PPBL from taking any further deposits from customers after February 29, 2024. However, customers are permitted to withdraw their balances from savings and current accounts to safeguard their interests.
• Prohibition on Deposits in Prepaid Instruments: Deposits in any prepaid instruments, wallets, FASTags, NCMC cards, etc. are prohibited after February 29, 2024. Nevertheless, the customers are allowed unrestricted utilization of their balances up to the available amount.
• Continuation of Certain Services: Other banking services such as fund transfers, BBPOU and UPI will continue to be provided by PPBL after February 29, 2024.
• Termination of Nodal Accounts: The nodal accounts of One97 Communications Limited and Paytm Payments Services Limited to be terminated by February 29, 2024.
• Settlement of Transactions: PPBL is mandated to settle all pipeline transactions and nodal accounts (in respect of all transactions initiated on or before February 29, 2024) by March 15, 2024.

This regulatory action underscores the RBI’s commitment to ensuring compliance and stability within the banking sector, safeguarding the interests of customers and stakeholders alike.

• “The directions issued by RBI under Section 35A of the Banking Regulation Act, 1949 stem from its effort to safeguard the consumers’ interest. It also underscores the importance of strictly adhering to compliance and regulatory standards of the banking and finance industry. Compliance is the core of any organization, be it a bank, non-banking financial corporation or fintech. When a company’s culture includes adhering to compliance & regulatory laws, regulations and guidelines, businesses can thrive.” – Anshuman Gupta, Counsel – Fox & Mandal

Contributed by Avneesh Bahuguna – Associate, Fox & Mandal

Comment by Anshuman Gupta – Counsel,  Fox & Mandal