RBI stops Paytm Payments Bank from onboarding new customers

Paytm Payments Bank (PPB) 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.

It had started operations in 2017 and claims to have 60 million bank accounts with 4 lakh users added every month. The Bank had received RBI’s approval to function as a scheduled payments bank recently in December 2021, helping it expand its financial services operations.

RBI on March 11, 2022 has directed PPB to stop onboarding new customers due to certain material supervisory concerns.

Key points to note –

  • RBI has directed the bank to appoint a reputed external auditor to conduct a comprehensive audit of it’s IT system.
  • PPB would be able to onboard new customers subject to specific permission from the RBI after reviewing the IT auditor’s report.
  • 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, i.e., KYC norms. RBI then had also mentioned that Paytm failed to maintain the end-of-the-day balance limit of Rs 100,000 per account.

For now, Paytm continues to face significant headwinds from every angle. Market value of the company has declined by almost 2/3rd since the listing in November 2021.

The current restriction can further impact Paytm’s plans to convert itself into a Small Finance Bank (SFB). The Company is planning to apply for SFB licence in August this year.

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