RBI unlikely to go lenient on Paytm after persistent noncompliance

Paytm Payments Bank Ltd (PPBL) was last week ordered to halt much of its operations by February 29, and the Reserve Bank of India’s regulatory action could be more of a death blow than a slap on the wrist, people in the know told DH. It is learnt that the RBI has been keeping an eye on PPBL going back as far as 2017, soon after Paytm’s banking arm began operations.

Even in its press statement, the central bank highlighted that the company’s issues with non-compliance have been persistent. The company was last directed to stop onboarding new customers in 2022. However, it continued operations without making any operational changes for existing customers, including the strengthening of its KYC norms. 

This could be the main factor behind the RBI now simply asking it to wind up operations without providing any clarity on how PPBL can make a turn around. Instead, the payment bank’s license will likely be revoked in the near future, reports indicate.

“The bank did not even have the basic system to check if the true PAN details were being provided. In most of the frauds happening online, the beneficiaries always have a Paytm account. The RBI can’t allow banks to be misused like this,” an industry insider noted.

Shares of Paytm fell 10% on Monday, and have fallen a collective 42% in the 3 trading sessions since RBI made its announcement, losing Rs 20,471.25 crore in market valuation.

Other banks and payment providers have also been reprimanded in the past, but the restrictions were lifted as soon as they became compliant, another source noted, adding that PPBL’s consistent refusal to fall in line is the biggest reason behind the latest action.

Although Finance Ministry officials have said that the Enforcement Directorate will not probe PPBL, the ripple effects of RBI’s directive can already be felt across Paytm’s other businesses. A bulk of transactions for its huge merchant network were conducted through PPBL, and Paytm is asking users to port to other banks for safer and quicker transactions.

Transferring merchant QR codes, which will likely become redundant after February 29, is also a mammoth task the company will have to undertake. Many are already signing up with rival payment providers, as the possibility of other banks partnering with Paytm, at the risk of upsetting the RBI, also looks unlikely in the near future, one of the officials quoted above said.

While discussions with Paytm are ongoing, any decision about partnerships is unlikely to be made before more clarity is provided, a senior employee at a major private sector bank said on the condition of anonymity.

Because the payments bank was such an integral part of Paytm’s overall ecosystem, the company will have to look for another unique selling point for its core payments business, even as market and customer sentiments about the company have already soured.