The Reserve Bank of India (RBI) has imposed major restrictions on Paytm Payments Bank, effective March 2024, due to persistent non-compliance with regulatory norms.

An RBI audit found continued supervisory concerns with the bank’s practices. As a result, Paytm Payments Bank is now barred from offering any new banking services.

Specifically, after February 29, 2024, the bank cannot accept new deposits, provide credits, or allow add-on payments to customer accounts, wallets, FASTags, etc. However, customers can still receive interest, cashbacks and withdraw or use existing balances.

Beyond fund transfers and withdrawals, Paytm cannot offer services like bill payments (BBPOU) or UPI payments after February 29. Additionally, nodal accounts of parent One97 Communications and Paytm Payments Services must close by the same date.

This essentially means Paytm Payments Bank can no longer undertake any payment transactions, even beyond a payments bank. As an entity, it is restricted to only allowing withdrawals from existing accounts.

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Payments banks can accept deposits but not provide credits, unless partnered with another regulated lender. They can issue debit but not credit cards, unless through a co-branded tie-up.

One97 Communications originally held the prepaid payments instruments license before transferring it to Paytm Payments Bank in May 2017 when operations began. Final approval for a payments aggregator license is also still awaited.

The new sanctions raised concerns among customers on Twitter regarding their Paytm wallet balances, deposits, and UPI transaction abilities going forward.

As per NPCI data, Paytm had a 13% and 11% market share of UPI transactions by volume and value respectively in October 2023. The restrictions effectively bar Paytm from participating in this payments channel.

Industry experts have commented that the RBI moves limit Paytm’s scope as a payments bank and impact non-banking activities as well. Parent One97 Communications, however, can still build on its insurance, lending and wealth management offerings.

The broader development comes at a time when RBI is reviewing bank business models in the context of diversification across financial services. Guidelines for digital banking licenses are also expected in 2023.

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