RBI cancels banking licence of Paytm Payments Bank Limited

• The Reserve Bank of India (RBI) cancelled the banking licence issued to Paytm Payments Bank Limited (PPBL) under Section 22(4) of the Banking Regulation Act, 1949 effective from April 24. 

• Consequently, Paytm Payments Bank Limited is prohibited from conducting the business of ‘banking’ as defined in Section 5(b) or any additional business specified under Section 6 of the Banking Regulation Act, 1949 with immediate effect. 

• The RBI will make an application for winding up of the bank before the High Court.

• The RBI noted that Paytm Payments Bank has enough liquidity to repay its entire deposit liability upon winding up.

Why RBI cancelled the licence of the Paytm Payments Bank?

The RBI said that:

i) The affairs of the bank were conducted in a manner detrimental to the interest of the bank and its depositors.

ii) The general character of the management of the bank is prejudicial to the interest of depositors as also the public interest. 

iii) No useful purpose or public interest would be served by allowing the bank to continue as envisaged in Section 22(3)(e) of the Banking Regulation Act, 1949.

iv) The bank failed to comply with the conditions stipulated in the Payments Bank license issued to it, thereby violating the provisions of Section 22(3)(g) of the Banking Regulation Act, 1949.

• Paytm Payments Bank started operations as a payments bank with effect from May 23, 2017. 

• The bank has been under the RBI lens over the past many years.

• Paytm Payments Bank was directed to stop onboarding new customers with effect from March 11, 2022.

• The bank was also directed to appoint an IT audit firm to conduct a comprehensive system audit of its IT system.

• Thereafter, on January 31, 2024 and February 16, 2024, certain business restrictions were also imposed on the bank, including disallowing any further deposits/credits/ top-ups in existing customer accounts, prepaid instruments, and wallets.

Will it affect Paytm payments app?

• One97 Communications, which owns Paytm brand, in company filing said the company has no exposure to Paytm Payments Bank.

• In a regulatory filing, the Noida-based fintech major said Paytm Payments Bank operates independently, with no board or management involvement from Paytm.

• Paytm said its services will continue uninterrupted.

• The services include the Paytm app, Paytm UPI, Paytm Gold and all other services offered by its subsidiaries and associated companies such as Paytm QR, Paytm Soundbox, Paytm card machines, and Paytm Payment Gateway, Paytm Money among others.

(The author is a trainer for Civil Services aspirants.)