RBI Forbids Paytm Bank From Onboarding New Customers; Everything You Need To Know

by Shatakshi Gupta

Paytm had played an instrumental role in strengthening the digital payment ecosystem in India after demonetization and garnered a huge customer base. However, the current year brought bad luck to the company. The share of Paytm has been tanked more than 50 percent from its listed price. Now, the Paytm Payments Bank has received a major setback from the Reserve Bank of India. The central bank has banned Paytm Payments Bank from adding new customers. RBI said in the latest order that its order is based on certain concerns related to material supervisory, which were observed by the central bank. The order said that this action against Paytm Payments Bank is under Section 35A of the Banking Regulation Act, 1949.The bank has been barred from adding new customers with immediate effect.

Directions to get audited:

Apart from the restriction,  the bank has also been directed to appoint an IT audit team to conduct a comprehensive system audit of its IT systems.  Allowing Paytm Payments Bank to add new customers after reviewing the IT auditors’ report, will be subject to RBI’s specific permission.

Under which rule, RBI did this?

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The RBI put to use the powers under Section 35A of the Banking Regulation Act 1949 which empowers the central bank to direct banks for deft management of their affairs. This provision was interested in the legislation to protect the interests of the depositors or the interests of the banking company.

Since some discrepancies could impact depositors if there are problems with KYC and IT compliance. So, the RBI stepped in and take preventive measures and ordered a further audit.

Halts bigger aspiration:

 Earlier in December 2021, the Reserve Bank of India had given the status of Schedule Payments Bank to Paytm Payments Bank.  With the status of the scheduled bank, Paytm Payments Bank will be able to participate in requests for proposals of government and other large corporations. Bank will also be able to appear in the primary auction. It will also be able to participate in Fixed Rate, Variable Repo Rate, Reverse Repo Rate, Marginal Standing Facility.

In May month of last year, Paytm has applied for upgradation from Payments bank to Small Finance Bank. Once received approval, the Paytm bank will be able to start lending operations as well. After these fresh restrictions, however, this longing of Paytm seems to get deferred.

Read more: Digital Pocket Money: What Are The Prepaid Cards For Children? Why These Cards Are Better Than Cash?

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