RBI bars Paytm Payments Bank from onboarding new customers

The Reserve Bank of India (RBI) on Friday barred Paytm Payments Bank from onboarding new customers, citing “material supervisory concerns” observed at the bank. The regulator has also directed the bank to appoint an information technology (IT) audit firm to conduct a comprehensive system audit of its IT system.

“Onboarding of new customers by Paytm Payments Bank Ltd will be subject to specific permission to be granted by RBI after reviewing report of the IT auditors,” the central bank said.

In its red herring prospectus (RHP), the bank’s parent One97 Communications had said Paytm Payments Bank provides a digital wallet service that allows consumers to make payments at about 88,000 online merchants and 21.8 million registered in-store merchants as of June 30, 2021. Over 155 million Paytm UPI handles have been created by the bank as on the same date. The total fixed deposits under management, offered in partnership with commercial banks, stood at `2,020 crore. The bank had 65 million bank accounts as on June 30, 2021.

The RBI took action in exercise of its powers under Section 35A of the Banking Regulation Act, 1949. Section 35A gives RBI the power to issue directions to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to its own interests.

This is not the first instance of Paytm Payments Bank inviting the regulator’s wrath. In October 2021, RBI fined the bank Rs 1 crore for submitting information which did not reflect the factual position while applying for its final certificate of authorisation (CoA). One97 Communications clarified in its RHP that while Paytm Payments Bank had confirmed the completion of the transfer of the Bharat Bill Payment Operating Unit (BBPOU) business from One97 Communications to the bank on August 28, 2017, the RBI observed that the actual transfer of the business was completed only by March 31, 2021.

On June 19, 2018, the RBI had prohibited Paytm Payments Bank from opening any new accounts and wallets on account of supervisory concerns, which were lifted with effect from December 31, 2018. In a separate instance, the office of the banking ombudsman had issued a show-cause notice dated March 6, 2019, noting that Paytm Payments Bank could not monitor a certain account maintained with it which had shown a sudden increase in the velocity in daily transactions involving immediate transfer to other banks. The RBI ruled that the action resulted in the violation of provisions of its know your customer (KYC) norms.

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