RBI says action against Paytm Payments Bank after persistent non-compliance

The action against Paytm Payments Bank late in January was taken after persistent non-compliance by the entity, the Reserve Bank of India stated on Thursday. It also signalled that the action was initiated after a lengthy bilateral engagement with the company.

Last week RBI announced severe curbs on Paytm Payments Bank, effectively curtailing it from doing much of its business after February 29. Paytm founder Vijay Shekhar Sharma has clarified several times that the payment app would continue to function normally after February 29 too. But there has been a lot of confusion among its users and the stock too has taken a beating.

Under the restrictions on the payments bank, no further deposits or credit transactions or top ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC (national common mobility) cards, etc. after February 29. Customers will be able to withdraw or utilise their balances in the Paytm Payments Bank account. The nodal accounts of One97 Communications and Paytm Payment Services are to be terminated at the earliest, not later than February 29.

"This is a supervisory action on a regulated entity for a persistent non-compliance. Such supervisory actions are invariably preceded by months and at times years of bilateral engagement where we not only pointing out the deficiencies but also provide adequate time for them to take corrective action," Swaminathan J, the deputy governor of RBI told reporters.

He also clarified that the action taken was on the payments bank and it was not to be confused with the payments app. "As an app, (Paytm) is not impacted by this action," he said.

The Reserve Bank plans to bring out an FAQ (frequently asked questions) next week to address the questions and clarifications in relation to the action taken on the payments bank.

Paytm Payments Bank is an associate of fintech One97 Communications Ltd. Sharma holds 51 per cent stake in the payments bank, with One97 holding the rest. One97 operates the payments app Paytm.

Governor Shaktikanta Das said that sufficient time is given to every entity supervised by the Reserve Bank to comply with the regulatory requirements. He also said that RBI being a responsible regulator wouldn't have to act against any entity if everything was compliant.

"When constructive engagement does not work or when the regulated entity doesn't take effective action, we go for imposing supervisory or business restrictions. Such restrictions, which we impose are always proportionate to the gravity of the situation," Das stressed.

He added that all its actions against any regulated entity were in the best interest of systemic stability and protection of depositors and customers.

"These aspects cannot be compromised. Individual entities should be mindful of these aspects for their long-term success," said Das, adding that the Reserve Bank would continue to encourage innovation and technology in the financial sector.

Issues at Paytm Payments Bank have been under RBI radar for some time now. In 2018, it was temporarily barred from opening new accounts, due to non-compliance with Know Your Customer (KYC) norms. Then in 2021, Paytm Payments Bank was fined Rs 1 crore, for providing false information. Then in March 2022, it had directed the payments bank to stop onboarding new customers.

RBI's monetary policy committee (MPC) on Thursday left the benchmark repo rate unchanged at 6.5 per cent for the sixth time. During the monetary policy statement, Das said good governance, robust risk management, sound compliance culture and protection of customers’ interest are of paramount importance for the safety and stability of the financial system and individual institutions.