Reserve Bank of India on January 31, 2024, restricted Paytm Payments Bank from onboarding new customers or accepting deposits starting March 2024. This effectively means that the bank will halt its operations. The Central Bank cited material supervisory concerns and non-compliance with regulations as reasons for the action.
Here is a breakdown of the Paytm Payments Bank crisis:
What was the recent RBI action against Paytm Payments Bank all about?
The RBI last week ordered Paytm Payments Bank Ltd, a restricted bank that can take deposits but cannot lend, to not take any further deposits or conduct credit transactions or carry out top-ups on any customers' accounts, prepaid instruments, wallets, cards for paying road tolls after February 29.
Paytm wallet customers can use money till the time their balance is exhausted. They cannot add money after February 29. And in case RBI does not relent, top-ups for Paytm wallet will stop and transactions through it can no longer be carried.
So what is Paytm Payments Bank, and who owns it?
Paytm Payments Bank Limited (PPBL) is an associate of One97 Communications Limited (OCL). One97 Communications holds 49 per cent of the paid-up share capital (directly and through its subsidiary) of PPBL. Vijay Shekhar Sharma has a 51 per cent stake in the bank.
PPBL commenced operations as a payments bank with effect from May 23, 2017. Paytm Payments Bank offers digital banking, including savings accounts, current accounts, fixed deposits with partner banks, and balance in wallets, UPI and FASTag, among other services.
Paytm Wallet, which comes under PPBL, leads the segment. As per RBI's provisional data for December 2023, Paytm Wallet users carried out 24.72 crore transactions worth over Rs 8,000 crore for the purchase of goods and services while 2.07 crore transactions were carried out for transferring over Rs 5,900 crore.
What happened and what does it mean for customers?
The RBI on January 31 directed the Paytm Payments Bank to stop accepting deposits or top-ups in customer accounts, wallets, FASTags and other instruments after February 29. Withdrawal or utilisation of balances by its customers from their accounts, including savings bank accounts, current accounts, prepaid instruments, FASTags and National Common Mobility Cards, are to be permitted without any restrictions, up to their available balance.
Paytm Wallet users can continue to carry on transactions till February 29. However, after February 29, they will be able to use their existing balance till the time it is exhausted, but not add any money to their account. The same rule is applicable to PPBL accounts, Paytm wallet-linked services like FASTag and National Common Mobility Card that are used for travel in metro and other public transport.
What are the alternatives for users?
There are over 20 banks and non-banking entities that offer wallet services. The leading ones after the PPBL wallet include Mobikwik, PhonePe, SBI, ICICI Bank, HDFC and Amazon Pay.
Similarly, there are 37 banks comprising public and private sector banks like SBI, HDFC, ICICI, IDFC and Airtel Payments Bank, which are authorised to provide FASTag. Customers can recharge FASTag online using their banks' mobile banking, internet banking or third-party apps like Google Pay and PhonePe.
Why did Paytm Payments Bank come under the RBI lens?
The banking regulator had been frequently flagging off issues. According to sources, money laundering concerns and questionable dealings of hundreds of crores of rupees between popular wallet Paytm and its lesser-known banking arm had led the Reserve Bank of India to clamp down on Vijay Shekhar Sharma-run entities.
Sources further said that PPBL had lakhs of non-KYC (Know Your Customer) compliant accounts and in thousands of cases single PANs were used for opening multiple accounts. There were instances of the total value of transactions -- running into crores of rupees--much beyond regulatory limits in minimum KYC pre-paid instruments raising money laundering concerns, sources said.
What has been the company's response to the RBI's Jan 31 action?
While users have the option to switch to other wallets and FASTag services being provided by other vendors, Paytm management has said that PPBL is in discussion with RBI to comply with their direction for continuing the business.
Paytm has said that its financial services such as loan distribution, insurance distribution and equity broking are not in any way related to PPBL and are expected to be unaffected. The company's offline merchant payment network offerings like Paytm QR, Paytm Soundbox and Paytm Card Machine will continue as usual, where it can onboard new offline merchants as well. Paytm sees an impact of Rs 300 to Rs 500 crore on its annual operational profit.
How have One97 Communications' shares responded?
Following the RBI's crackdown, shares of One97 Communications Ltd, which owns the Paytm brand, slumped 40 per cent in the last two days. The stock tanked 20 per cent to Rs 487.05, its lowest trading permissible limit for the day, on the BSE on Friday. In two days, the company's market capitalisation (mcap) eroded by Rs 17,378.41 crore to Rs 30,931.59 crore. (With PTI inputs)
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