The Reserve Bank of India (RBI) has asked Paytm Payments Bank Ltd to halt the onboarding of new users.
According to the order issued by the central bank, it was stated that the decision is based on “certain material supervisory concerns observed in the bank”.
The order by the central bank states: “RBI has today, in exercise of its power, inter alia, under section 35A of the Banking Regulation Act, 1949, directed Paytm Payments Bank Ltd to stop, with immediate effect, onboarding of new customers.”
It also clearly stated that the Vijay Shekhar Sharma-led Paytm Payments Bank must also hire an income tax (I-T) audit firm to undertake a full system audit of its IT system.
Additionally, the order, authorised by chief general manager, Yogesh Dayal, stated that Paytm Payments Bank Ltd’s onboarding of new customers will be subject to specific permission from the RBI after reviewing the I-T audit.
In December last year, the RBI granted Paytm Payments Bank permission to operate as a “scheduled payments bank”, allowing it to extend its financial services offerings.
The RBI’s move comes after One97 Communications, which is Paytm’s parent company, had a poor listing performance after valuation concerns were raised.
Paytm Payments Bank has previously stated that it received over 926 million UPI transactions in December, making it the country’s first beneficiary bank to do so. Moreover, it was reported that it processed 2,507.47 million beneficiary transactions between October and December last year, compared to 964.95 million in the same quarter in 2020. This represents a 159.85% growth year over year (YOY).
Paytm Payments Bank was established in August 2016 and started operations in May 2017 from a Noida branch.
RBI had taken similar action against Paytm Payments Bank in August 2018 too. The regulator had noted violations of know your customer (KYC) rules at the time.
The RBI was particularly unhappy with the strong ties between the payments bank and its parent company, One97 Communications Ltd, according to reports.
At that time, it was reported that Paytm Payments Bank had failed to meet the Rs 100-crore net worth criteria and was also exceeding the Rs 1-lakh deposit limit allowed per account for payments banks at the time, according to RBI’s reply to a Right to Information Act plea.
RBI has taken similar action against the HDFC Bank in December 2020. The bank was restricted by the central bank from introducing any new digital products or services or issuing new credit cards unless it rectified recurring technical concerns.
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