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RBI restricts Paytm Payments Bank; deposits, onboarding halted

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The Reserve Bank of India (RBI) has wielded its regulatory authority, directing Paytm Payments Bank Ltd (PPBL) to immediately halt the onboarding of new customers and accept deposits and credit transactions, among other restrictions.

The measures are set to activate on February 29, allowing Paytm only a few weeks to start the transition.

The directive, issued under section 35A of the Banking Regulation Act, 1949, comes in the wake of a Comprehensive System Audit report and the subsequent compliance validation report, highlighting persistent non-compliances and material supervisory concerns within the bank.

Effective immediately, PPBL is prohibited from accepting new deposits or credit transactions, including top-ups in customer accounts, prepaid instruments, wallets, FASTags, and NCMC cards after February 29, 2024. However, exceptions have been made for interest, cashbacks, or refunds, which may still be credited to customer accounts.

Customers, on the other hand, have been assured by the RBI that withdrawals or the utilisation of balances from their accounts, spanning savings bank accounts, current accounts, prepaid instruments, FASTags, and National Common Mobility Cards, will face no restrictions, allowing them access up to their available balance.

In addition to the limitations on banking services, the central bank also ordered One97 Communications and Paytm Payments Services to shut down their nodal accounts as soon as possible.

Paytm has been in ongoing disputes with the Reserve Bank of India for an extended period.

This move is expected to prompt Paytm to shift several of its businesses to alternative banking partners, as indicated by a preliminary industry assessment.

“Settlement of all pipeline transactions and nodal accounts (in respect to all transactions initiated on or before February 29, 2024) shall be completed by March 15, 2024, and no further transactions shall be permitted thereafter,” said the RBI circular.

This latest regulatory intervention follows penalties imposed by the RBI in 2022 when Paytm Payments Bank was found to share data with foreign servers without notifying the customers.

The implications of these new measures on Paytm’s financial ecosystem remain to be seen, as the company will need to swiftly adapt to these regulatory constraints and explore alternative avenues for its banking services.

Investors and industry observers closely monitor the situation as Paytm navigates this challenging regulatory landscape.

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Kumar Hemant

Deputy Editor at Candid.Technology. Hemant writes at the intersection of tech and culture and has a keen interest in science, social issues and international relations. You can contact him here: kumarhemant@pm.me

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