In a significant setback to Paytm, one of India’s leading digital payment firms, the Reserve Bank of India (RBI) has directed Paytm Payments Bank, an associate of One 97 Communications, to stop accepting new deposits in its accounts or popular wallets from March onwards.
The move comes as a result of persistent non-compliances and supervisory concerns identified in an audit conducted by the RBI, following a previous directive in 2022 instructing the bank to stop adding new customers.
Paytm responded promptly, stating in a Thursday release that it would take immediate steps to adhere to the RBI’s directives. The fintech company anticipates a potential impact ranging from 3 billion to 5 billion Indian rupees ($36.12 million) on its annual earnings before interest, tax, depreciation, and amortization (EBITDA).
One 97 Communications, also known as Paytm, announced it would discontinue its association with Paytm Payments Bank and exclusively collaborate with other banks moving forward. The RBI’s action, however, does not affect user deposits in their savings accounts, wallets, FASTags, and NCMC (National Common Mobility Card) accounts, where existing balances can still be utilized, according to Paytm’s statement.
The regulatory measures will effectively bring an end to the operations of Paytm Payments Bank, as noted by analysts at Bernstein. The restrictions, effective from March 1, will prohibit the bank from accepting fresh deposits, facilitating credit transactions, or offering fund transfers, including those through India’s Unified Payments Interface, Reuters news report said.
Despite these limitations, customers will retain the ability to withdraw or use their balances with the bank. The RBI has also ordered the termination of nodal accounts for both Paytm and its subsidiary, Paytm Payments Services, by the end of February. Nodal accounts, essential for facilitating transactions, will be moved to other banks, as confirmed by Paytm.
An undisclosed source familiar with the matter indicated that the RBI’s concerns revolve around the perceived lack of “arms-length distance” between the bank, One 97, and Paytm Payments Services. The regulator invoked a legal provision in the interest of depositors, leaving the timeline for reviewing the imposed restrictions unspecified.
One 97 Communications, a major player in India’s payment landscape with early investments from SoftBank and Ant Financial, holds a 49 percent stake in Paytm Payments Bank, while promoter Vijay Shekhar Sharma owns the remaining 51 percent. The RBI had previously ordered a comprehensive audit of the bank’s systems in March 2022, and in October 2023, it fined the bank for inadequate customer due diligence.
As Paytm seeks clarity on the potential lifting of these restrictions, analysts anticipate both short and medium-term impacts on the Paytm platform operations, adding to the existing regulatory challenges faced by the company.