RBI prohibits Paytm Payments Banks from offering services from March 2024


RBI prohibits Paytm Payments Banks from accepting deposits or conduct credit transactions, though costumers are still allowed to withdraw or use available balances in their accounts, including wallets, FASTags.

RBI prohibits Paytm Payments Banks from offering services
RBI prohibits Paytm Payments Banks from offering services.

 

The Reserve Bank of India (RBI) slapped further restrictions on Paytm Payments Bank Ltd (PPBL) on Wednesday, banning it from operating its mobile wallet after February. It has also been prohibited from making more deposits, conducting credit transactions, or  top ups in  any client accounts, prepaid instruments, wallets, FASTags, or National Common Mobility Cards after February 29.

Due to concerns about regulatory violations and compliance, the RBI has put limits on Paytm Payments Bank and prevented the firm from offering additional financial services beginning in March 2024.

“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,” the Reserve Bank of India stated.

Paytm Payments Bank will be unable to accept deposits, credit transactions, or top-ups in any client accounts, prepaid instruments, wallets, FASTags, or NCMC (National Common Mobility Cards), among others, after February 29, 2024.

However, any interest, cashbacks, or refunds can be credited to these accounts at any time, and consumers can withdraw or use their balances without limitation.

According to sources, the RBI’s decision will have no influence on the use of the UPI channel through the PayTM app, which is held by the parent firm rather than PPBL

Nodal accounts to be closed

“No other banking services, other than those referred above, like fund transfers (irrespective of name and nature of services like AEPS, IMPS), BBPOU and UPI facility would be provided by the bank after February 29, 2024,” the Reserve Bank of India (RBI) said.

The nodal accounts of One97 Communications Ltd and Paytm Payments Services Ltd must also be closed by February 29. PPBL has been instructed to pay all pipeline transactions and nodal accounts by March 15, with transactions beginning on or before February 29. No more transactions will be accepted.

What is Payment Banks?

A Payments Bank does not provide loans or credit cards. It accepts deposits up to Rs 1 lakh from consumers. It offers a variety of different financial services, including remittance transfer services and the sale of financial products from other banks. A payment bank does not provide loans such as gold loans, business loans, or personal loans. However, they can market loan and insurance products from other NBFCs and banks.

While the listed parent company One97 Communications formerly held the prepaid payments instruments (PPI) licence, it was transferred to Paytm Payments Bank when it began operations in May 2017. The company is also currently awaiting final clearance for its payments aggregator (PA) license.

RBI prohibits Paytm Payments Banks
Paytm Payments Bank.( Pics Credits-@PaytmBanks)/X

 

The new limits effectively shut down banking operations unless the firm moves or routes its payment services through another bank. Until then, industry experts believe it will be impossible for Paytm to conduct other payment-related activities, including those outside of the payments bank.

“For all practical reasons, the above announcements mark the end of Paytm Payments Bank’s operations. This is a significant negative development that adds to the already hefty regulatory burden on the firm,” Bernstein Research stated in a note.

While the firm does not expect an immediate impact on the UPI payment business, which accounts for 70% of GMV (gross merchandise value), it anticipates risks to the payments margin because several of the higher margin products, such as wallets and FasTag, rely on the payments bank.

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