February , 2024
Regulatory action against Paytm
12:36 pm

B.E. Bureau

Paytm Payments Bank Limited (PPBL) faced regulatory action on January 31, as the Reserve Bank of India (RBI) mandated a halt to onboarding new customers after February 29, 2024. Additionally, PPBL was instructed to cease accepting deposits, credit transactions, and top-ups for road tolls beyond the specified date. Existing customers can utilize their balances until exhausted, but no further additions are allowed post-February 29, 2024.

As a subsidiary of One97 Communications Limited (OCL), PPBL, led by managing director Vijay Shekhar Sharma, has encountered scrutiny due to concerns regarding money laundering and questionable dealings involving significant sums between Paytm and its banking arm. Issues include numerous non-KYC-compliant accounts, instances of single PANs used for multiple accounts, and transactions surpassing regulatory limits in minimum KYC pre-paid instruments.

The familiar “Paytm karo” jingle may now ring discordant, attributed to OCL’s management. Despite assurances of continued app functionality beyond February 29, 2024, concerns arise among Paytm’s millions of users. PPBL, with 50 million account holders and part of a group with 300 million wallets, faced warnings from the RBI in March 2023 but took no corrective measures, leading to the recent restrictions.

About a quarter of all UPI transactions on Paytm link to a PPB account, but the regulator notes a lack of separation between Paytm and the bank, hindering potential partnerships with other banks for UPI transactions. Regulatory scrutiny, including the potential investigation of PPB for fund siphoning, adds further challenges, raising concerns among investors.

The clash between the RBI and PPBL should be seen as a substantial obstacle rather than a minor “speed bump,” emphasizing the vital responsibilities of regulated entities and regulators in the financial sector. This episode underscores lenient policies in onboarding new customers for payment banks and fintech payment gateways, urging the RBI to address such lapses with tighter surveillance.

In conclusion, the RBI’s directive exposes serious irregularities in PPBL’s controls, prompting concerns about similar lapses in other fintech service providers. While encouraging digitization of payments is essential, regulatory vigilance is equally crucial. The RBI’s actions against Paytm Payments Bank serve as a call for enhanced oversight, prompting a review of the role of payment banks in the financial system.

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