The Reserve Bank of India (RBI) imposed restrictions on Paytm Payments Bank due to concerns about breaches of and compliance with regulatory norms. The RBI’s decision was based on the findings from the Comprehensive System Audit report and subsequent compliance validation report of the external auditors, which revealed persistent non-compliances and continued material supervisory concerns in the bank.
Specifically, the RBI found that Paytm Payments Bank had failed to identify the beneficial owner for entities onboarded for providing payout services, did not monitor payout transactions, failed to carry out risk profiling of entities availing payout services, breached the regulatory ceiling of end-of-the-day balance in certain customer advance accounts, and delayed reporting a cybersecurity incident.
Additionally, the RBI expressed concerns over the close relationship between Paytm Payments Bank and its parent One97 Communications. Payments banks are required to maintain an arm’s length distance from promoter group entities. There were also allegations that the payments bank had failed to meet the Rs 100-crore net worth criteria, and had exceeded the Rs 1-lakh deposit limit allowed per account for payments banks at the time
The RBI’s restrictions mean that Paytm Payments Bank will not be allowed to accept deposits or undertake credit transactions or top-ups in any customer accounts, prepaid instruments, wallets, FASTags, and NCMC (National Common Mobility Cards), among others, post February 29, 2024. Other than fund transfers, utilization or withdrawal, no other banking services and BBPOU (Bharat BillPay Operating Units) and UPI facility should be provided by the bank after February 29, 2024.
