The Reserve Bank of India (RBI) has barred Paytm Payments Bank from offering all forms of banking services, including accepting deposits and processing of payments. However, unlike the curbs on Yes Bank or several cooperative banks, the latest series of RBI restrictions were not a fallout of the dire finances of the entity concerned.
Instead, the curbs came because of Paytm’s alleged failure to comply with regulations and institute remedial measures to correct earlier audit shortcomings. Here’s an explanation of how the move will impact Paytm Bank customers, the company, and the ecosystem—and how different the current set of curbs is from previous regulatory clampdowns.
How will RBI action impact the Paytm app or the wallet of a customer?
The customer can accept or receive funds in the app until February 29. Thereafter, the customer can only withdraw or transfer funds from his Paytm wallet or Paytm Payments Bank account until the available balance is exhausted. No fresh deposits or top-ups into the bank account or wallet, which is housed with the bank, will be allowed after the deadline, as the regulator has barred the bank from offering services like fund transfers through AEPS (Aadhar Enabled Payment System), IMPS (Immediate Payment Service), and UPI (Unified Payments Interface).
The payments bank will work on smoothening the migration of its wallet customers, the management said. It will also work on changing the earlier scheduled autopay mandates.
What will happen to prepaid instruments — Fastag, NCMC cards — issued by the bank?
The balance available in these instruments can be used, withdrawn, or transferred without any restrictions. However, any topup or fresh credits into these accounts will be barred from March 1.
What is the status of RBI’s directive issued on March 11, 2022?
That restriction continues to be in force. Wednesday’s supervisory action is over and above it, following RBI’s comprehensive system audit report and subsequent compliance validation report by the external auditors that highlighted persistent non-compliances and continued material supervisory concerns in the bank.
Does the RBI’s action indicate anything about Paytm Bank’s financial status?
No, it does not. The RBI took the action against the bank as it was found to have persistent non-compliance and material supervisory concerns during audits on adhering to regulations. Here, the RBI did not put any restrictions on withdrawing deposits or balances — curbs that were applied to Punjab & Maharashtra Co-operative Bank in 2019 and Yes Bank in 2020 to prevent a run on their deposits.
The management, which expects a Rs 300-500-crore hit in operating profit for the fiscal year, expects full normalcy of business lines by March. Due to the curbs, the wallet business at Paytm is expected to shrink dramatically.
What will happen to nodal accounts of One 97 Communications?
The bank has to close these accounts by February 29. One97 Communications and Paytm Payments Services will now have to move the nodal accounts to other banks to continue their payment services. Through nodal accounts, One97 Communications and Paytm Payments Services accept payments from different bank accounts and forward the payments to merchants.
Will RBI’s direction affect usage of Paytm app or UPI channel usage via Paytm app?
No. Paytm app, which is owned by the parent company, One97 Communications, and the use of the UPI channel can be done without any restriction.
What is the immediate impact of the curb on merchants?
For a start, QRs linked to payment addresses embedded in the Paytm Payments Bank will have to be migrated to new bank partners. Additionally, the management will work toward shifting settlement accounts out of the payments bank. Still, about 70,000 merchants whose repayment accounts are hosted on the Paytm Payments Bank.