Why Paytm Payments Bank Banned by RBI? Know here all Details

Major business restrictions, including a ban on taking in new deposits and credit transactions, were placed on Paytm Payments Bank by the Reserve Bank of India (RBI) on January 31. The central bank had previously prohibited Paytm Payments Bank from accepting new clients on March 11, 2022. In the event that you are aware of this development, you should know the following. What limitations exist? The notification states that Paytm Payments Bank will not be able to take on credit transactions, receive new deposits, or top up any customer accounts. 

The RBI declared that supervisory action was necessary due to the Paytm Payments Bank’s ongoing material supervisory concerns.

The deadline for examining the limitations was not disclosed by the apex bank.

The parent company of the Paytm Payments Bank is One 97 Communications Ltd, situated in Noida. It owns a 49% share in the business.

To “expand its existing relationships with leading third-party banks to distribute payments and financial services products,” Paytm announced in a statement.

What is Payment Bank?

A payments bank is a type of financial services provider where each account is limited to ₹2 lakh in deposits. Although direct lending is prohibited, loan products may be sold. It could also advertise additional third-party loan offerings.

Why did the RBI put Restrictions on Paytm Payments Bank?

The RBI took action against Paytm Payments Bank in response to supervisory concerns and reports of non-compliance.

According to the central bank, a Comprehensive System Audit report and the external auditors’ subsequent compliance validation report demonstrated ongoing material supervisory concerns and persistent non-compliance in the bank, necessitating additional supervisory action.

What will be the impacts on customers?

Deposits made after February 29 are no longer accepted by Paytm Payments Bank. It won’t be able to use wallets or carry out credit transactions. This implies that customers’ loan amounts cannot be credited to the bank through its wallets or accounts.

Customers are still free to take money out of or use their current balances, though.

Fund transfers, including those made through the well-liked Unified Payment Interface in India, will not be provided by the bank. This implies that an individual will not be able to use UPI to transfer the balance in the Paytm Payments Bank. The RBI stated that One97 Communications Ltd. and Paytm Payments Services’ nodal accounts must be closed as soon as possible and no later than February 29.

Additionally, the bank will not be allowed to do any operations involving the reloading of customer accounts, prepaid cards, wallets, or toll-paying cards.

Nonetheless, the bank has the authority to credit consumer accounts with interest, cashbacks, or refunds.

Up to their available balance, customers may withdraw or use funds from any of their accounts, including savings bank accounts, current accounts, prepaid cards, FASTags, and National Common Mobility Cards, without any limitations.

Customers can still use their existing balances, but they won’t be able to top off these services with additional money.

“No further deposits or credit transactions or top ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024, other than any interest, cashbacks, or refunds which may be credited anytime,” it said.

After the RBI deadline, it is unlikely that Paytm’s wallet app and UPI services connected to other banks’ accounts will be affected. It is most likely only going to affect the services connected to the bank accounts used for payments.

What are the restrictions implemented on Paytm Payments Bank?

The notification states that Paytm Payments Bank will not be able to take on credit transactions, receive new deposits, or top up any customer accounts. Prepaid cards, wallets, FASTags, and NCMC cards are a few more examples of this.

Termination of nodal accounts

The RBI stated that the One97 Communications Ltd. and Paytm Payments Services Ltd. Nodal Accounts must be closed as soon as possible and, in any event, no later than February 29, 2024.

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