RBI scraps licence of Paytm Payments Bank

MUMBAI: RBI on Friday cancelled the banking licence of Paytm Payments Bank with immediate effect, prohibiting it from carrying out any banking business and setting in motion the process for winding up, even as the entity had already been reduced to a runoff institution after earlier restrictions.

RBI said it will apply for the winding up of the bank before the High Court. It added that the bank has enough liquidity to repay its entire deposit liability upon winding up. PPBL has been encouraging depositors to withdraw funds after restrictions on all activities two years ago left the bank a defunct institution.

While the winding down itself does not have a material impact on One97 Communications, the company that owns the Paytm brand, RBI has invoked various sections that empower it to close banks if it has an adverse view of the bank’s operations. This might intensify regulatory scrutiny on the parent and on any new or existing licences held by group entities, and might act as a red flag for new RBI licences. More so considering the statements issued by RBI to justify the licence cancellation.

RBI said “The affairs of the bank were conducted in a manner detrimental to the interest of the bank and its depositors”, adding that “the general character of the management of the bank is prejudicial to the interest of depositors as also the public interest”. It said “no useful purpose or public interest would be served by allowing the bank to continue”, and added that the bank failed to comply with licence conditions. RBI had directed the bank to stop onboarding new customers from March 11, 2022. It later imposed restrictions on Jan 31, 2024 and Feb 16, 2024 that disallowed further deposits, credits, or top-ups in customer accounts, prepaid instruments, and wallets.

UPI services are now extended as a third party provider using handles of banks such as Axis Bank, Yes Bank, and State Bank of India, allowing users to continue transactions through the app. Merchant acquiring, including QR-based payments, continues through partner banks, with settlement accounts migrated away from the bank. The wallet business, which was tied to the bank, has seen restrictions on fresh loading after earlier curbs and will wind down. Debit cards issued by the bank are expected to become inactive over time.
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