RBI Orders India’s “Most Sincere Bank” To Cease All Deposits, Credit Transactions

The Reserve Bank of India (RBI) directed Paytm Payments Bank Ltd., an associate entity of One 97 Communications Ltd., to stop all deposits and credit transactions after 29 February due to persistent non-compliances and continued material supervisory concerns in the bank.

The development comes after the RBI in March 2022 directed Paytm Payments Bank to stop onboarding of new customers based on certain material supervisory concerns observed in the bank. The banking regulator had also ordered the bank to appoint an IT audit firm to conduct a comprehensive system audit of its IT system.

“The comprehensive system audit report and subsequent compliance validation report of the external auditors revealed persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action,” Yogesh Dayal, chief general manager at the RBI, said in a statement on 31 January.

As a result, the RBI ordered:

• No further deposits or credit transactions or top ups will be allowed in any customer accounts, prepaid instruments, wallets, FASTags and national common mobility cards (NCMC) after 29 February, 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 and NCMC are to be permitted without any restrictions, up to their available balance.

• No other banking services, other than those referred above, like fund transfers (irrespective of name and nature of services like Aadhaar Enabled Payment System and Immediate Payment Service), Bharat Bill Payment Operating Unit and Unified Payments Interface (UPI) facility should be provided by the bank after 29 February.

• The nodal accounts of One97 Communications and Paytm Payments Services Ltd. are to be terminated at the earliest, in any case not later than 29 February.

• Settlement of all pipeline transactions and nodal accounts (in respect of all transactions initiated on or before 29 February) should be completed by 15 March and no further transactions shall be permitted thereafter.

Paytm Payments Bank -- which calls itself as India’s “most sincere bank” --- facilitates transactions on mobile commerce platform Paytm and has more than 300 million wallets and 30 million bank accounts, according to its website.

Vijay Shekhar Sharma, the founder of One 97 Communications, is the part-time chairman of Paytm Payments Bank and spearheads the bank’s strategy and vision.

One 97’s Response

Paytm Payments Bank is taking immediate steps to comply with the RBI directions, including working with the central bank to address its concerns as quickly as possible, One 97 Communications, the parent of online fintech platform Paytm, said in a stock exchange announcement.

One 97 Communications said it works with several banks and not just Paytm Payments Bank on various payments products. The company started working with other banks since starting of the embargo and will now accelerate the plans and completely move to other bank partners, it added.

The company said the Paytm Payment Gateway business (online merchants) will continue to offer payment solutions to its existing merchants. The company’s offline merchant payment network offerings like Paytm QR, Paytm Soundbox, Paytm Card Machine, will continue as usual, where it can onboard new offline merchants as well, it noted.

One 97 Communications said its other financial services such as loan distribution, insurance distribution and equity broking, are not in any way related to Paytm Payments Bank and are expected to be unaffected by the RBI’s direction.

The company said it expects the RBI’s action to have a worst case impact of 300 crore rupees to 500 crore rupees ($36 million-$60 million) on its annual EBITDA going forward.

One 97 Communications, in response to market rumors, also said its founder has reconfirmed to the company that he has not taken any margin loans, or otherwise pledged any shares that are directly or indirectly owned by him.

Note: $1 = 83.0737 Indian rupees

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