The Reserve Bank of India has ordered Paytm Payments Bank Ltd (PBBL) to stop accepting deposits in its accounts or popular wallets, delivering a blow to one of India’s largest payment entities.

In March 2022, the central bank had stopped Paytm Payments Bank from taking on new customers.

The latest crackdown comes after a comprehensive audit of the bank revealed persistent non-compliance with regulations and “continued material supervisory concerns in the bank”. The RBI did not amplify on the regulatory lapses.

Using its powers under Section 35A of the Banking Regulation Act, the RBI said no further deposits or credit transactions or top-ups would be allowed in customer accounts, prepaid instruments, wallets, FASTags and national common mobility cards (NCMC) after February 29, 2024. The NCMC is a service that allows a bank’s customers to use their debit cards on the Metro Rail or buses where such a payment facility exists.

However, the RBI gave some respite to Paytm customers, permitting them to withdraw sums from their savings and current bank accounts. It also allowed them to utilise the balances in their pre-paid instruments, FASTags and NCMC cards until the money was exhausted. The RBI said fund transfers from these accounts, payments to billing services like gas, electricity, phone companies, etc, and the use of the UPI facility should not be provided after February 29.

The nodal accounts of One97 Communications Ltd — the Paytm parent — and Paytm Payment Services Ltd will be terminated no later than February 29, the RBI circular said.

While the RBI has often taken strict action against other banks in the past, it has indicated that the restrictions will be lifted once the deficiencies are resolved. Crucially, this was not visible in its order against PPBL on Wednesday. Industry circles said that while this is one of the sternest actions taken by the RBI against a regulated entity, its directions would effectively halt the banking activities of PPBL, which reportedly has deposits of over Rs 3,000 crore.

At its recent earnings call, Paytm said it had 100 million active customers in the third quarter (October-December 2023) and over 1 crore merchants. It was not immediately clear how badly the Paytm ecosystem would be affected by the latest RBI directive.
The company did not comment on the developments or clarify issues for its vast customer base.