Repeated flouting of RBI warnings may cost pPaytm its payments bank licence

The Reserve Bank of India may revoke the licence issued to Paytm Payments Bank after the fintech major failed to respond to the regulator’s warnings repeatedly over the past few months, top sources told businessline.

  • Also read:ED to probe Paytm Payment Bank if money laundering found

The central bank has given time to Paytm Payments Bank (PPBL) to wind down operations by March 15, and is expected to wait till the month end to ensure that ecosystem players are not impacted following which the bank licence will be revoked effective April 1, 2024.

“Cancellation of licenses is not something that can be done overnight. There is a natural process of justice to be adhered and respondents must be given adequate chances to prove their side. The respondents were given enough opportunities to take remedial actions and yet serious lapses have been found to persist,” an industry source said.

“There are certain conditions which have time till March 15 for compliance. Once all the migration related steps are taken, the entity would be as good as defunct,” they added.

Paytm has said it is working with other banks to resume lending and other operations. But, the fact is that One 97 was not allowed to give loans, and it was the payments bank that was on-lending through other tie-ups. In case of the bank licence being revoked, Paytm will be unable to continue to distribute loans in the absence of any viable licence.

The regulatory action taken on January 31, barring Paytm Payments Bank from offering banking services effective March 2024, is the culmination of a four-year battle between the central bank and Paytm on issues such as lack of segregation in IT, risk and other operations between the two entities, and persistent violation of KYC and customer on-boarding norms.

PPBL started operations in 2017 following which One 97’s PPI (Prepaid payments instrument) licence was transferred to the bank. The RBI first imposed curbs on the bank in 2018 which were eventually lifted after the company submitted an IT audit report detailing its compliance with necessary regulations. However, it later emerged that Paytm had made falsified reports, including giving incorrect information to the auditor. Following discussions with the company through 2020, the central bank in 2021 asked Paytm to undertake another audit, through approved auditors. One 97 was also warned to fix any compliance and governance issues if it did not wish to face penalties or curbs.

Multiple warnings and discussions amid persistent non-compliances led to the 2022 action, wherein RBI asked the bank to stop onboarding new clients. In 2023, the central bank imposed a penalty of ₹5.4 crore for breach of KYC guidelines.

  • Also read:RBI’s Do’s and Don’ts: guide to safeguard against KYC fraud threats

While the RBI has so far not revoked the payments bank licence, it is expected to be the next logical step given that operations have already been effectively shut down and the parent company will not be left with any operational licence, sources said. They added that RBI is also trying to encourage other ecosystem players to reach out to Paytm’s merchants and customers to ensure they are not impacted or operations disrupted, and can recover their money or migrate to another bank within the stipulated time.

(With inputs from Hamsini Karthik)

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