RBI Imposes Ban on Paytm Bank Over Money Laundering, KYC Issues

The Reserve Bank of India (RBI) has taken a strict action against Paytm Payments Bank Ltd (PPBL), an associate company of One 97 Communications that runs Paytm, for violating several regulatory norms and guidelines. RBI has barred PPBL from accepting new customers, deposits, credit transactions, or top-ups in any of its platforms, including wallets, FASTags, and Mobility Cards, after February 29, 2024 .

Reasons for the ban

According to RBI, the action against PPBL is due to “non-compliance and continued material supervisory concerns in the bank”. The regulator has cited issues related to money laundering, KYC non-compliance, questionable dealings of hundreds of crores of rupees between Paytm wallet and PPBL, and lack of internal controls and governance in the bank .

RBI had earlier imposed restrictions on new customer on-boarding at PPBL in 2018, after finding out that the bank was not maintaining a physical access point in every district where it operates. The bank was also found to be outsourcing its core banking functions to its parent company without prior approval from RBI.

Impact on customers

The RBI ban will have a significant impact on the existing customers of PPBL, who number over 100 million KYC customers, 300 million wallet users, 30 million bank account holders and have a 17 per cent market share in FASTag by value.

Starting from March 1, 2024, customers will not be able to use PPBL’s core and popular services like Paytm Wallet, Paytm UPI, and Bill Payment Services (for Mobiles, Electricity, DTH) etc. They will also not be able to avail other banking services such as transfer of funds, Aadhaar Enabled Payment System, Immediate Payment Service, Bharat Bill Payment Operating Unit, and the UPI facility.

However, customers can freely withdraw funds without any limitations from their accounts. They can also access and withdraw the remaining balance in their Paytm accounts. Any interest, cashback, or refunds that may be credited any time will also be available for withdrawal. Mobility Cards work for various payments like shopping, parking, ATM withdrawals, metro and bus rides, fuel, and food bills will also be discontinued.

Future prospects

The RBI ban is a major setback for PPBL, which was aiming to become India’s largest digital bank with over 500 million customers by 2025. The ban will also affect the parent company’s plans to launch an initial public offering (IPO) later this year.

PPBL has said that it is in dialogue with RBI to resolve the issues and resume its operations as soon as possible. It has also assured its customers that their money is safe and secure with the bank.

RBI has not specified any timeline or conditions for lifting the ban on PPBL. It will depend on how quickly and effectively the bank addresses the regulatory concerns and demonstrates its compliance with the banking norms.