Paytm, the operating name of One 97 Communications Limited (PAYTM.NS), shares cratered today as the Reserve Bank of India (RBI) decided to halt deposits in its digital wallet and accounts.
Paytm describes itself as India’s most loved payments app. The company also operates Paytm Payments Bank as a digital bank that includes a virtual debit card and accounts.
Yesterday, RBI said that it had exercised its authority under 35A of the Banking Regulation Act to halt the onboarding of new customers with immediate effect. RBI claimed that a Comprehensive System Audit and subsequent compliance validation report by external auditors “revealed persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action.”
Paytm Payments Bank has been directed by RBI to:
- Accept 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, cashbacks, or refunds which may be credited anytime.
- Withdrawal or utilization 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.
- No other banking services, other than those referred in (ii) 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 Nodal Accounts of One97 Communications Ltd and Paytm Payments Services Ltd. are to be terminated at the earliest, in any case not later than February 29, 2024.
Settlement of all pipeline transactions and nodal accounts (in respect of all transactions initiated on or before February 29, 2024) shall be completed by March 15, 2024 and no further transactions shall be permitted thereafter.
In a corporate statement, Paytm announced it was working with regulators to address the issues.
“We now will accelerate the plans and completely move to other bank partners. Going forward, OCL will be working only with other banks, and not with Paytm Payments Bank Limited. The next phase of OCL’s journey is to continue to expand its payments and financial services business only in partnerships with other banks.”
OCL is a payments company that works with various banks. Paytm clarified its relationship with OCL, stating:
“Paytm Payments Bank Limited is run independently by its management and board. While OCL is allowed to have two board seats on the board of Paytm Payments Bank Limited as a part of its shareholder agreement, OCL exerts no influence on the operations of Paytm Payments Bank Limited other than as a minority board member and minority shareholder.”
Separately, Paytm said that in response to market rumors, their founder has reconfirmed that he has not taken any margin loans or otherwise pledged any shares that are directly or indirectly owned by him.
Citing sources in the know, Reuters reported that RBI’s actions toward Paytm could be a step towards revoking the company’s bank license. The report added that RBI’s actions “followed years of non-compliance with central bank rules, including on customer due diligence, use of funds and technology infrastructure.”