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Economy
Mahesh

09/02/24 10:37 AM IST

The Paytm Payments Bank debacle

In News
  • In a major blow to fintech services provider Paytm, the Reserve Bank of India (RBI) barred its payments bank subsidiary, Paytm Payments Bank Ltd (PPBL) from obtaining further deposits and top-ups in its accounts or wallets from February 29.
Why RBI prohibited Paytym?
  • The RBI has disallowed the Paytm subsidiary from accepting further deposits, top ups or credit transactions into its operated wallet or accounts from February 29.
  • This also applies to its prepaid instruments for FASTags and National Common Mobility Cards (NCMC) cards.
  • Present customers would, however, be allowed to use their existing balances to avail the services.
  • The payments bank, according to Macquire Capital, houses the parent company One97 Communication (OCL)’s more than 330 million wallet accounts. In other words, transactional money is held in the wallets of the payments bank
  • PPBL has been prohibited from carrying out any banking services (in the nature of services like AEPS, IMPS etc), bill payments and UPI.
  • It has also been directed to “terminate at the earliest”, or before February 29, nodal accounts of its parent company and Paytm Payments Services. Nodal accounts are a type of bank account opened by businesses (financial intermediaries) and are used for holding money from participating banks — from the consumer’s side, and ultimately remitting to the specific merchant.
Concerns
  • The first set of concerns relates to its licensing.
  • RBI guidelines for licensing of payments banks stipulate that entities cannot undertake lending activities. PPBL does not lend directly. Instead, it provides credit-dispensing products from third parties.
  • The other issue relates to its governance structure and related party-transactions.
  • For perspective, Paytm owns 49% of PPBL. The remainder is held by founder Vijay Shekhar Sharma.
  • OCL in its initial response put forth that, adhering to banking regulations, PPBL is “run independently” by its management and board.
  • It further argued against having exerted any influence on the subsidiary’s operations other than as a minority board member or shareholder.
  • It further communicated having “reconfirmed” with founder that he has not taken any margin loans or pledged any shares – directly or indirectly owned by him.
Source- The Hindu

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