RBI Bans Paytm Payments Bank Operations: Banking Services Halted, Shares Drop 19%

The Reserve Bank of India (RBI) on January 31, 2023, ordered Paytm Payments Bank Ltd. (PPBL) to cease accepting deposits and allowing credit transactions from February 29, 2024. Further no top-ups, in customer accounts or prepaid instruments - such as wallets and FASTags - linked to those accounts are permitted. Customers can, however, continue to utilise balances from their accounts, including savings and current "without restriction (and) up to their available" limit, the Reserve Bank order said.

“No further deposits or credit transactions or top-ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc., after February 29, 2024, other than any interest, cashback, or refunds which may be credited anytime. Withdrawal or utilisation of balances by its customers from their accounts including savings bank accounts, current accounts, prepaid instruments, FASTags, National Common Mobility Cards, etc., are to be permitted without any restrictions, up to their available balance,” RBI release said.

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“No other banking services, other than those referred above, 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,” the release added.

The central bank cited "persistent non-compliances" and "continued material supervisory concerns" after an external audit as a reason for barring the bank.

Essentially the RBI action is against the banking operations of Paytm, meaning customers can continue to use Paytm as a digital payment option so long as their account is linked to an external bank. The RBI has also terminated nodal accounts of One97 Communications Ltd., Paytm's parent company, and PPBL.

Bank's Response

The bank's parent company One97 Communications plans to transfer PPBL accounts to other banks, it said in a statement to the exchanges. The parent company thus plans to ensure a seamless process for all stakeholders as PPB houses all the key products offered by Paytm, including wallets, UPI, and deposit accounts. However, Moneycontrol reported that this may not be an easy task as it is the largest beneficiary bank in the Unified Payments Interface ecosystem holding a quarter of all credit transactions in the UPI ecosystem. A beneficiary bank is the institution that has the most inbound transactions or more credits than debits. Shares of One97 Communications Ltd. have already dropped 19 per cent since the announcement.