Financial Services Secretary Vivek Joshi on Wednesday said it is for the Reserve Bank to deal with the Paytm issue and the government has nothing to do with the matter for now.

He also said that Paytm Payments Bank Ltd (PPBL) is a small financial entity and there are no systemic stability concerns.

Amid concerns over non-compliance, Reserve Bank of India (RBI) has taken various measures against PPBL wherein it will not be allowed to offer any services concerning deposits, prepaid instruments and e-wallet after February 29.

The entity has also been directed to stop onboarding new customers.

"It is action taken by the regulator. They regulate the banks. The government has had nothing to do until now when it comes to the actions taken against Paytm. And we believe that RBI must have taken the action in the overall interest of the consumer and the economy," Joshi told PTI in an interview.

With regard to Foreign Direct Investment (FDI) in Paytm's payment aggregator subsidiary, he said permission that has been sought for investment from China.

"The application is under review as it is an inter-ministerial process. It is under consideration," he said.

On whether there are any financial stability concerns due to the action taken by the RBI against PPBL, Joshi said it is a very small bank and there were no systemic stability concerns as such.

"The customers who have an account in the payments bank, they will have to shift their account.... From what I understand, it is not the bank that will migrate the accounts. The customers have to do it," he added.

Against the backdrop of RBI actions, on Tuesday, Paytm Founder Vijay Shekhar Sharma met Finance Minister Nirmala Sitharaman.

Sources said that it was made clear to him that Paytm has to deal with RBI.

There are allegations that PPBL had lakhs of non-KYC (Know Your Customer) compliant accounts and in thousands of cases, single PAN (Permanent Account Number) was used for opening multiple accounts.

There were also instances where the total value of transactions was worth crores of rupees, much beyond regulatory limits in minimum KYC pre-paid instruments, raising money laundering concerns, the sources said.

According to an analyst, PPBL has about 35 crore e-wallets. Out of them, around 31 crore are dormant while only about 4 crore would be operative with either no balance or a small balance.

An unusually high number of dormant accounts are suspected to have been used as mule accounts. So, there were major irregularities in KYC compliance, which exposed the customers, depositors and wallet holders to serious risks, as per the analyst.

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