On the 31st of January, a pivotal moment unfolded as the Reserve Bank of India (RBI) issued an unequivocal directive, compelling the six-year-old Paytm Payments Bank to bring its operations to an abrupt halt. This directive wasn’t a mere warning; it symbolized the regulatory authority’s resolute stance, having witnessed the payments bank trespass the boundaries set by the RBI on no less than five occasions since its establishment in 2017.
Unlike preceding admonitions, the regulator’s language bore an air of finality, extinguishing any glimmer of hope for remedial action. Sankarson Banerjee, a technology consultant to banks and former Chief Information Officer of RBL Bank, likened it to an “unusual death sentence.” While the RBI closed off all avenues for business, it notably refrained from wielding the customary axe of license revocation, typically brandished in such scenarios.
This clampdown serves as a sequel to the central bank’s earlier move on March 11, 2022, when it not only prohibited the bank from onboarding new customers but also mandated a comprehensive audit of its IT systems. A subsequent compliance validation report from external auditors uncovered persistent non-compliances and ongoing material supervisory concerns, prompting the RBI to escalate its measures.
Commencing on February 29, all transactions involving Paytm Bank’s products, spanning savings accounts, wallets, Fastag, and national common mobility cards, will face prohibition. However, a lifeline in the form of withdrawals will persist until the account balance is exhausted. The regulator, taking a stern stance, further restrained the bank from facilitating any transactions, encompassing immediate payment services, aadhaar-enabled payment systems, and unified payments interfaces (UPI).
In a bid to fortify its directives and eliminate potential loopholes, the RBI introduced a critical phrase: “irrespective of name and nature of the product.” Additionally, the RBI directed One97 Communications Ltd (ONCL), the listed payments entity, and Paytm Payments Service Ltd, its payment gateway operator, to promptly sever their nodal accounts with the beleaguered bank.