New Delhi: The Reserve Bank of India on Wednesday barred Paytm Payments Bank Ltd from accepting fresh deposits and making credit transactions. India's apex bank said in a statement that the action was precipitated by the bank's "persistent non-compliances".
The RBI said the Paytm Payments Bank's continued material supervisory concerns warranted supervisory action.
The apex bank didn't reveal any timeline for reviewing the restrictions.
Noida-based One 97 Communications Ltd is the parent company of the Paytm Payments Bank. It holds 49 percent stake in the company.
In a statement, Paytm said it will ‘expand its existing relationships with leading third-party banks to distribute payments and financial services products’.
What is a payments bank?
A payments bank is a financial services company that cannot accept more than ₹2 lakh in deposits per account. It is not allowed to lend directly but can sell loan products. It can also promote other third-party loan products.
How will the action affect customers?
Paytm Payments Bank now cannot take deposits after February 29. It will not be able to perform credit transactions, including via wallets. This means the bank won't be able to credit loan money to customers through its accounts or wallets.
However, customers can withdraw or utilise their existing balances without restrictions.
{{/usCountry}}However, customers can withdraw or utilise their existing balances without restrictions.
{{/usCountry}}The bank will not be allowed to offer fund transfers, including via India's popular Unified Payment Interface. This means if a person wants to transfer the balance in the Paytm Payments Bank through UPI, she won't be able to do so.
Also read: Are you a Paytm Payments Bank customer? Check how RBI action impacts you
The RBI said the nodal accounts of One97 Communications Ltd and Paytm Payments Services are to be terminated at the earliest and not later than February 29.
The bank will also be barred from activities like topping up any customer accounts, prepaid instruments, wallets, cards for paying road tolls.
The bank, however, can credit interest, cashbacks or refunds in the accounts of customers.
Withdrawal or utilisation of balances by its customers from their accounts including savings bank accounts, current accounts, prepaid instruments, FASTags, National Common Mobility Cards, will be permitted without any restrictions, upto their available balance.
This means customers will not be able to top up these services with fresh funds but can use existing balances
"No further deposits or credit transactions or top ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024, other than any interest, cashbacks, or refunds which may be credited anytime," it said.
It is unlikely that Paytm's wallet application and UPI services linked to the accounts of other banks will be impacted after RBI's deadline. Only the services linked to the payments bank accounts are likely to be impacted.
The latest decision comes nearly two years after the regulator barred the bank, from taking on new customers because it violated certain rules, Bloomberg News had reported. Founder Vijay Shekhar Sharma had then said the bank is fully compliant with Indian rules.
With Bloomberg, Reuters inputs