Paytm Payments Bank: How will RBI measures impact customers?

The Reserve Bank of India (RBI) on 31 January announced action against Paytm Payments Bank Ltd (PPBL), citing supervisory concerns and compliance issues. The central bank, under the authority of section 35A of the Banking Regulation Act 1949, has imposed stringent restrictions on PPBL's operations, particularly targeting fresh deposits and credit transactions across its services.

This move comes following a prior directive issued on 11 March 2022, in which the RBI instructed PPBL to halt the onboarding of new customers. Subsequent reports from comprehensive system audits and compliance validations by external auditors revealed persistent non-compliance and ongoing material supervisory concerns within the bank, prompting the RBI to escalate its supervisory measures.

Restrictions Imposed on Paytm Payments Bank:

1. No Fresh Transactions: PPBL is prohibited from accepting new deposits, credit transactions, or top-ups in any customer accounts or associated instruments after 29 February.

2. Limited Banking Services: The bank is directed to cease the provision of all banking services beyond basic account access after 29 February.

3. Restricted Fund Transfers: PPBL is not allowed to offer fund transfers, including through India's popular unified payment interface (UPI) facility.

Permitted Activities:

1. Interest, cashback, and refunds: PPBL is allowed to deposit interest, cashback, or refunds in customer accounts.

2. Customer access: Existing customers can make unrestricted withdrawals or utilise their balances across various accounts and instruments, including savings bank accounts, prepaid instruments, FASTags, and National Common Mobility Cards (NCMC).

While payments banks like PPBL are permitted to accept small deposits up to Rs 2 lakh, they are restricted from lending directly but can facilitate and sell loan products.

Additionally, regulatory directives mandate the termination of nodal accounts associated with One97 Communications Ltd, which holds a 49 per cent stake in PPBL, and Paytm Payments Services Ltd. by 29 February.

PPBL is also obligated to settle all pending transactions and nodal account obligations initiated on or before 29 February by 15 March. As these measures take effect, existing customers must navigate the limitations while understanding the allowances granted during this period of regulatory scrutiny.