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Mahesh

01/02/24 08:17 AM IST

RBI action against Paytm: probable causes, effects

In News
  • The Reserve Bank of India (RBI) barred it from offering all its core services—including accounts and wallets—from March, effectively crippling the company’s business.
RBI order
  • The central bank has barred Paytm Payments Bank from offering practically all of its key services—accepting deposits or top-ups in any customer account, prepaid instruments, wallets, FASTags, National Common Mobility Card (NCMC), etc. after February 29 in the wake of “persistent non-compliances and material supervisory concerns”.
  • No other banking services…like fund transfers (irrespective of name and nature of services like AEPS, IMPS, etc.), BBPOU and UPI facility should be provided by the bank after February 29, 2024.
  • Settlement of all pipeline transactions and nodal accounts—in respect of all transactions initiated on or before February 29—should be completed by March 15, and no transactions shall be permitted thereafter.
Implications
  • As per the RBI, withdrawal or utilisation of balances by customers from their Paytm accounts including savings bank accounts, current accounts, prepaid instruments, FASTags, NCMC, etc. are to be permitted without any restrictions, “up to their available balance”.
  • The RBI statement, however, does not mention a number of other services like loans, mutual funds, bill payments, digital gold, and credit cards.
Why these actions?
  • Paytm Payments Bank has been facing RBI scrutiny since 2018.
  • While the central bank did not specify the exact reasons for the latest action against Paytm, sources in the know said it could be due to the RBI’s concerns on KYC compliance and IT-related issues.
  • The central bank is against allowing any institution or banking entity to expose depositors’ money to such risks.
  • The Paytm Payments Bank and its parent One97 Communications had also come under RBI scrutiny for purported lack of requisite information barriers within the group and data access to China-based entities that were indirect shareholders in the payments back through their stake in the parent company.
  • The failure to address these concerns at multiple levels over an extended period led to the latest action by the RBI.
  • As of December 31, Antfin held 9.89 per cent stake in the company, as per stock exchange data.
Earlier actions against RBI
  • In October 2023, the RBI had slapped a fine of Rs 5.39 crore on Paytm Payments Bank due to deficiencies in regulatory compliance.
  • According to the regulator, the payments bank failed to identify beneficial owner in respect of entities onboarded by it for providing payout services, did not monitor payout transactions and carry out risk profiling of entities availing payout services, breached the regulatory ceiling of end-of-the-day balance in certain customer advance accounts, and reported a cyber security incident with delay.
  • The RBI also had concerns over the close relations between Paytm Payments Bank and its parent One97 Communications.
  • Payments banks are required to maintain an arm’s length distance from promoter group entities. Paytm parent firm One97 Communications held 49% stake in Paytm Payments Bank while 51% was held by Paytm founder Vijay Shekhar Sharma.
  • There were also allegations that the payments bank had failed to meet the Rs 100-crore net worth criteria and also exceeded the Rs 1-lakh deposit limit allowed per account for payments banks at the time.
Source- Indian Express

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