Paytm Bank: RBI Extends Restrictions Deadlines to March 15

Paytm Bank, one of the leading payment banks in India, is facing a tough time as the Reserve Bank of India (RBI) has imposed severe restrictions on its operations. The RBI has accused Paytm of persistent non-compliances and material supervisory concerns, and has ordered it to stop accepting new customers, deposits, credit transactions, fund transfers and other services after February 29, 2024. However, the RBI has also extended the deadline for Paytm Bank to settle all pipeline transactions and nodal accounts from February 29 to March 15, 2024.

What are the RBI restrictions on Paytm Bank?

The RBI issued a press release on January 31, 2024, announcing its action against Paytm Bank under Section 35A of the Banking Regulation Act, 1949. The RBI had earlier directed Paytm Bank to stop onboarding new customers in March 2022, after a comprehensive system audit report revealed several violations and deficiencies in the bank’s operations. The RBI has now further tightened its grip on Paytm by imposing the following restrictions:

• No further deposits or credit transactions or top ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, National Common Mobility Cards, etc. after February 29, 2024, other than any interest, cashbacks, or refunds which may be credited anytime.
• Withdrawal or utilisation of balances by its customers from their accounts including savings bank accounts, current accounts, prepaid instruments, FASTags, National Common Mobility Cards, etc. are to be permitted without any restrictions, upto their available balance.
• No other banking services, other than those referred in (ii) above, like fund transfers (irrespective of name and nature of services like AEPS, IMPS, etc.), BBPOU and UPI facility should be provided by the bank after February 29, 2024.
• The Nodal Accounts of One97 Communications Ltd and Paytm Payments Services Ltd. 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) shall be completed by March 15, 2024 and no further transactions shall be permitted thereafter.

The RBI has also assured the customers of Paytm that their deposits and balances are safe and there is no need to panic. The RBI has also issued a FAQ on its website to address the queries raised by the public on the action against Paytm.

What is the impact of the RBI restrictions

Paytm Bank is one of the largest payment banks in India with over 3.1 crore savings bank accounts and around 10 lakh current accounts. It also offers prepaid instruments, wallets, FASTags and National Common Mobility Cards to its customers. The RBI restrictions will affect the ability of Paytm Bank to offer these services and products to its existing and potential customers.

However, some experts have argued that the disruption from the RBI restrictions on Paytm will be less than feared. They have pointed out that only around 10% of the Paytm UPI app users have underlying accounts with Paytm Bank and that around 70% of the merchants using Paytm do not have bank accounts with Paytm Bank. They have also noted that out of over 3.1 crore savings bank accounts with Paytm Bank, around 1.4 crore or 45% are either dormant or frozen. Moreover, out of around 35 crore wallets issued by Paytm Bank, around 30 crore or over 85% have zero balance.

Therefore, the impact of the RBI restrictions on Paytm Bank may be limited to a small segment of its customers who have active accounts or balances with the bank. These customers will still be able to withdraw or use their funds without any restrictions until their available balance is exhausted. They will also be able to receive interest, cashbacks or refunds in their accounts or instruments. However, they will not be able to deposit more funds or carry out credit transactions or fund transfers after February 29, 2024.

What is the future of Paytm Bank?

The future of Paytm Bank depends on how it responds to the RBI action and how it addresses the issues raised by the regulator. The RBI has not revoked the license of Paytm Bank, but has only imposed restrictions on its operations until it complies with the norms and regulations. The RBI has also not specified any timeline or criteria for lifting the restrictions on Paytm Bank.

Paytm has expressed its commitment to work with the RBI and resolve the matters at the earliest. It has also stated that it is in the process of submitting a detailed compliance report to the RBI and that it is confident of meeting the regulatory expectations. Paytm has also assured its customers that it is fully operational and that it will continue to serve them with the best possible services.

Paytm will have to demonstrate its compliance and improvement to the RBI and regain its trust and confidence. It will also have to retain its existing customers and attract new ones by offering innovative and competitive products and services. Paytm Bank will have to face the challenges posed by the RBI action as well as the competition from other payment banks and fintech players in the market.

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