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Mahesh

12/03/22 08:20 AM IST

RBI bars Paytm Payments Bank from acquiring customers

In News 

  • The central bank barred SoftBank-backed Paytm Payments Bank from adding new customers due to likely gaps in its technology systems, potentially denting its small finance bank aspirations and further roiling investors skeptical of the fintech's ability to boost earnings after an expensive initial share sale.

RBI's decision

  • The Reserve Bank of India (RBI) Friday directed Paytm Payments Bank Ltd to stop onboarding new customers with immediate effect and conduct a comprehensive audit of its IT system, citing “material supervisory concerns
  • Onboarding of new customers by Paytm Payments Bank will be subject to specific permission to be granted by RBI after reviewing report of the IT auditors.
  • The RBI  in exercise of its powers, inter alia, under Section 35A of the Banking Regulation Act, 1949, directed Paytm Payments Bank to stop, with immediate effect, onboarding of new customers,” it said.
  • The bank has also been directed to appoint an IT audit firm to conduct a comprehensive System Audit of its IT system.
  • The RBI action is a result of a series of compliance and regulatory issues with Paytm. These include KYC compliance and also IT related issues.


About Paytm 

  • Paytm Payments Bank is a joint venture between Paytm founder Vijay Shekhar Sharma and the listed holding company One97 Communications, the parent of Paytm. Sharma owns 51% in the bank in his personal capacity.
  • RBI claims to have 60 million bank accounts with 4 lakh users added every month, according to its website.
  • It is also one of the largest issuers of the FASTag system for toll payments at highways, with more than 8 million FASTag units issued so far.
  • Paytm Payments Bank got the approval from the RBI in 2017.
  • For the year-ended March 31,2021, Paytm Payments Bank, which has the largest scale among all payment banks, had recorded net profit of Rs 17.88 crore on sales of Rs 1,987.84 crore, according to Paytm’s IPO prospectus.
  • One97 Communications owns 49 per cent equity interest in Paytm Payments Bank, while the rest 51 per cent is owned by Vijay Shekhar Sharma.
  • This is the second time that Paytm is facing a regulatory ban. In June 2018, RBI had made certain observations about the processes the company followed to acquire new users, especially in relation to know-your-customer (KYC) norms.

Small finance Bank 

  • Small Finance Banks are the financial institutions which provide financial services to the unserved and unbanked region of the country.
  • They are registered as a public limited company under the Companies Act, 2013.
  • The main purpose behind having small finance banks is to expand access to financial services in rural and semi-urban areas. These banks can do almost everything that a normal commercial bank can do but at a much smaller scale.
Source- Indian Express 

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