Why Restrictions on Paytm bank




 The Reserve Bank of India (RBI) on January 31 issued an order banning Paytm Payments Bank Limited (PPBL) from carrying out a wide range of activities:

  • No further deposits, credit transactions, or top-ups are allowed in any customer accounts, prepaid instruments, wallets, FASTags, or National Common Mobility Cards after February 29, 2024, other than any interest, cashback, or refunds.
  • No fund transfers, Bharath Bill Pay, and UPI facility should be provided by the bank after February 29, 2024.
  • The nodal accounts of One97 Communications Limited and Paytm Payments Services Limited 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) should be completed by March 15, 2024, and no further transactions should be permitted thereafter.

Customers of Paytm Payments Bank are, however, allowed to withdraw or use their balances in their bank accounts, current accounts, prepaid instruments, FASTags, National Common Mobility Cards, etc., without any restrictions, up to their available balance.

Why these restrictions:

                                           PPBL was barred from onboarding new customers in March 2022. Following this, multiple audits by external auditors revealed persistent non-compliance and continued material supervisory concerns in the bank, warranting the above supervisory action, RBI stated.

What is Paytm’s response?

The RBI restrictions on Paytm Payments Bank have created lots of uncertainty for Paytm customers and merchants because it provides most of the payment and banking services for Paytm including the fintech giant’s widely used UPI services.

One97 Communications Limited (OCL), which owns Paytm and has a 49 percent stake in Paytm Payments Bank, on February 1 informed stock exchanges that:

  • Paytm will move to other banks to continue providing services: Paytm will work with other banks to continue offering the various payment services and financial products that are currently being provided by Paytm Payments Bank. Paytm explained that it has already been working with various banks other than Paytm Payments Bank on various products and it will now accelerate the plans and completely move to other bank partners.
  • Merchants will not be affected: Paytm said that it offers services to merchants in partnership with several leading banks in the country. Offline merchant payment offerings like Paytm QR, Paytm Soundbox, and Paytm Card Machine will continue as usual, and Paytm can onboard new offline merchants as well, the company claimed. Meanwhile, the Paytm Payment Gateway business for online merchants will continue to offer payment solutions to its existing merchants, the company added. Paytm cannot onboard new online merchants because it was barred from doing so in November 2022 for separate reasons.
  • Nodal accounts will be moved to other banks: Paytm has said that it will move its nodal accounts currently being held with Paytm Payments Bank to other banks. A nodal account is generally used to collect payments from different bank accounts and methods of payments before forwarding them to merchants.
  • Loans, insurance, and broking unaffected: Paytm’s loan distribution, insurance distribution, and equity broking, are not affected as they are not related to Paytm Payments Bank in any way.
  • Worst-case impact of ₹300-500 crores: Paytm expects RBI’s actions to have a worst-case impact of Rs. 300 to 500 crores on its annual EBITDA (earnings before interest, taxes, depreciation, and amortization) going forward.
  • Paytm Payments Bank working with RBI to address concerns: Paytm Payments Bank has informed Paytm that it is working with the RBI to address their concerns as quickly as possible.

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