RBI Bans Paytm Payments Bank From Onboarding New Customers: Here's Why
The Reserve Bank of India (RBI), in a surprise move on Friday, banned fintech giant Paytm from onboarding new customers on its payments bank.
"Reserve Bank of India has today, in exercise of its powers, 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," the central bank said in a statement.
While no reasons were given in the statement, it indicated that all is not well in the company widely seen as the poster boy of India's startup success story.
The RBI has also been directed to appoint an IT audit firm to conduct a comprehensive system audit of its IT system.
"Onboarding of new customers by Paytm Payments Bank Ltd will be subject to specific permission to be granted by RBI after reviewing reports of the IT auditors. This action is based on certain material supervisory concerns observed in the bank," it said.
What happened?
According to the RBI, the action followed material supervisory issues at the payments bank.
Paytm is yet to comment on the development, but some reports suggest that several reasons including violation of norms related to Know Your Customer (KYC), data storage, data privacy and outsourcing of data, could be behind the RBI move.
Paytm Payments Bank was incorporated in August 2016 and formally began its operations in May 2017 from a branch in Noida. As per the last disclosed numbers, PPBL had around 6.4 crore customers.
This is not the first time Paytm and Paytm Payments Banks led by Vijay Shekhar Sharma have run into troubles with RBI.
The RBI had in June 2018 too prohibited PPBL from onboarding new customers on account of supervisory concerns. The restrictions were lifted on December 31, 2018.
The central bank had also issued a show cause notice to the firm dated July 29, 2021, stating that Paytm Payments Bank had committed an offence under the Payment and Settlement Systems Act, 2007 by submitting false information to RBI confirming completion of the transfer of Bharat Bill Payment Operating Unit business by One97 Communications to PPBL.
The RBI had imposed a penalty of Rs 1 crore on Paytm Payments Bank for the offence.
The latest RBI action comes at a time when Paytm was eyeing to upgrade its payments bank to a small finance bank licence, after completing five years of operation in May this year.
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