What it Means for Depositors

The Reserve Bank of India has cancelled the banking licence of Paytm Payments Bank, citing concerns over the bank’s management and conduct being detrimental to depositors and public interest, leading to its prohibition from all banking activities.

Paytm Payments Bank is now prohibited from conducting any ‘banking’ business.
The RBI will apply to the high court to wind up the bank, assuring that it has enough liquidity to repay all deposit liabilities.

The RBI on Friday announced the cancellation of banking licence issued to Paytm Payments Bank for non-compliance with norms, saying the affairs of the bank were conducted in a manner detrimental to the interest of its depositors.

The Reserve Bank of India (RBI) will make an application for winding up of the bank before the high court.

The bank failed to comply with the conditions stipulated in the Payments Bank licence issued to it, the central bank said.

Regulatory Scrutiny and Non-Compliance
Paytm Payments Bank, part of Vijay Shekhar Sharma-promoted fintech firm Paytm, came under the regulatory scanner on multiple occasions earlier, including in March 2022 when the central bank barred it from onboarding new customers.

The licence was cancelled effective from the close of business hours on Friday, the Reserve Bank of India (RBI) said, adding that Paytm Payments Bank has enough liquidity to repay its entire deposit liability upon winding up.

The RBI said the affairs of the bank were conducted in a manner detrimental to its own interests as well as its depositors.

“The general character of the management of the bank is prejudicial to the interest of depositors as also the public interest… no useful purpose or public interest would be served by allowing the bank to continue…,” the RBI said in a statement.

Paytm Payments Bank was not complying with certain norms of the Banking Regulation Act, 1949, it added.

Impact and Future Operations
According to the central bank, Paytm Payments Bank Ltd is prohibited from conducting the business of “banking” or any additional business specified under the Banking Regulation Act with immediate effect.

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

The Reserve Bank had issued a licence to the bank to carry on the business of payments bank in the country.

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

Previously, the bank was directed to stop onboarding new customers with effect from March 11, 2022 amid “material supervisory concerns” observed in the bank.

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.

One97 Communications Ltd (OCL) owns the Paytm brand.

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