SUMMARY
The RBI barred the fintech major to stop transactions via its banking service
The actions taken by the RBI against Paytm was the result of the fintech mammoth’s non-compliance with the regulatory measures, as rolled out by the central bank of India
This development comes after a group of startup founders reportedly wrote a letter to the RBI Governor Shaktikanta Das and FM Nirmala Sitharaman to reconsider the move
Days after the Reserve Bank of India (RBI) asked Paytm to shut its key banking services after February 29, its chief executive Vijay Shekhar Sharma, along with other staff, met the central bank’s officials to discuss the regulatory action.
This comes at a time when a group of startup founders has written to Prime Minister Narendra Modi, Finance Minister Nirmala Sitharaman and the Reserve Bank of India (RBI) governor Shaktikanta Das, urging them to “review” and “reconsider” the regulatory directive.
The letter, signed by startup founders, including Murugavel Janakiraman of Bharat Matrimony, Deepak Shenoy of CapitalMind, Ritesh Malik of Innov8, Vishal Gondal of GOQii, Yashish Dahiya of PB Fintech and Rajesh Magow of MakeMyTrip, requested the trio to engage in constructive dialogue with the fintech ecosystem.
According to a report by news agency Reuters that quoted two sources, Sharma and other officials of Paytm met RBI on Monday to discuss a roadmap to address the regulatory concerns flagged by the central bank.
Paytm reportedly asked for an extension of February 29 deadline. No resolution or forward movement was decided in the meeting between Vijay Shekhar Sharma and RBI. The regulator reportedly did not spell out any remedial measure in the meeting.
The company also sought clarity from RBI regarding transfer of licence for the wallets business and FASTag, the report added.
On January 31, 2023, the RBI imposed restrictions on Paytm Payments Bank, prohibiting it from accepting deposits, credit transactions, or top-ups in customer accounts. Additionally, the central bank halted other banking services, including UPI facilities and fund transfers, effective February 29, 2024.
Set up in 2017, Paytm Payments Bank is among the top payments banks in the country, providing a mobile banking platform and e-wallet services. Paytm’s parent firm, One97 Communications, holds a 49% stake in Payment Payments Bank.
Paytm’s share price experienced a significant decline, hitting the lower circuit on three occasions (Feb 5, Feb 2, and Feb 1). Amidst reports of Jio Financial Services and HDFC Bank considering acquiring Paytm’s wallet business and reassurances from Sharma regarding job security, the company has undergone notable developments following the regulatory action.
Amid this, the Confederation of All India Traders (CAIT) has advised all the businesses and traders to switch from Paytm to other payment platforms for business-related transactions.
Paytm Payment Bank’s Frequent Run-Ins With The RBI
This is not the first time Paytm Payments Bank has come into the RBI’s crosshairs.
In October last year, the central bank slapped the listed fintech giant’s subsidiary with an INR 5.39 Cr penalty for non-compliance with know-your-customer norms.
At the time, the RBI also flagged six major issues with the payments bank, including failure to identify beneficial owners in respect of onboarded entities for providing payout services, the failure to monitor payout transactions and carry out risk profiling of entities availing payout services, and failure to report cybersecurity incidents without delay.
In March 2022, the RBI directed Paytm Payments Bank to stop onboarding new customers, a restriction which is still ongoing. While the payments bank expressed hope in September 2023 that the restrictions might be lifted in March 2024, the latest RBI action might have thrown a spanner in the works on that front.
