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RBI Banned Paytm : RBI Imposes Major Restrictions on Paytm Payments Bank Due to Non-Compliance after February 29

RBI Banned Paytm : Paytm Payments Bank Faces Bans on Deposits and Onboarding Customers

RBI Banned Paytm : In a startling development that sent shockwaves across the financial landscape, Paytm Payments Bank finds itself barred from accepting deposits or onboarding new customers after February 29, 2024. The stringent measure, instigated by the Reserve Bank of India (RBI), is a direct response to identified non-compliances and persistent supervisory concerns within the bank.

RBI Directs Swift Termination of Nodal Accounts

The RBI’s official statement issued on Wednesday not only instructs Paytm Payments Bank to cease onboarding new customers but goes a step further. It mandates the termination of the nodal accounts belonging to One 97 Communications Ltd, an associate of the bank, and Paytm Payments Services Ltd by February 29, 2024. Furthermore, the directive emphasizes the urgency of settling all pipeline transactions and nodal accounts by March 15, 2024.

Background of RBI Action – System Audit and Compliance Validation

The genesis of the RBI’s decisive action can be traced back to a comprehensive system audit report and subsequent compliance validation report conducted by external auditors. This move follows a prior directive issued in 2022, where the RBI had instructed Paytm Payments Bank to halt the onboarding of new customers due to growing concerns about non-compliance issues.

Impact on Paytm Customers

With the ban coming into effect after February 29, customers face a multitude of restrictions. Deposits, credit transactions, or top-ups in any accounts, prepaid instruments, wallets, FASTags, or National Common Mobility Cards will be disallowed. While no new deposits will be accepted, existing customers will retain the ability to withdraw funds from their accounts. Additionally, services such as fund transfers and UPI facilities will be unavailable after the specified date, creating potential inconveniences for Paytm users.

Paytm Forecasts Up to Rs. 500 Crore Loss Following RBI’s Ban on Deposits

Paytm’s Anticipation of Financial Impact

In response to the RBI’s directive, Paytm, in an announcement on Thursday, revealed its anticipation of a substantial adverse impact on annual earnings. The financial blow is estimated to range between ₹300 to ₹500 crore due to the RBI’s preventive measures, which prohibit Paytm Payments Bank from accepting new deposits starting in March. The company is actively engaged in implementing measures to swiftly adhere to the RBI’s directives.

Paytm’s Response and Future Plans

In light of the regulatory restrictions, Paytm’s parent company, One97 Communications Ltd. (OCL), swiftly unveiled its plans to transition entirely to other bank partners, excluding Paytm Payments Bank Limited. In a statement, OCL declared its commitment to working exclusively with other banks, marking the next phase of its journey to expand its payments and financial services business. The fintech giant is actively collaborating with regulatory bodies to address concerns promptly.

RBI Banned Paytm

Unaffected Paytm Services

Despite the challenges posed by the RBI’s directive, Paytm sought to reassure its user base. The Payment Gateway business, catering to online merchants, will continue seamlessly, delivering payment solutions to existing clients. Importantly, user deposits in savings accounts, wallets, FASTags, and NCMC accounts remain unaffected, allowing customers to utilize their existing balances. Additionally, OCL’s offline merchant payment network services, including Paytm QR, Paytm Soundbox, and Paytm Card Machine, will continue operations without disruption. This includes the capacity to onboard new offline merchants in the usual course of operations.

Independence of Paytm Payments Bank

Addressing concerns about the autonomy of Paytm Payments Bank, the company clarified that its founder, Vijay Shekhar Sharma, has not engaged in margin loans or pledged any shares linked to the bank. Paytm Payments Bank Limited operates independently under its management and board, with OCL maintaining a minority position and exerting no significant influence on its operations beyond being a minority board member and shareholder. The clarification aims to instill confidence in stakeholders about the distinct operational entities within the Paytm ecosystem.

In conclusion, the regulatory restrictions imposed by the RBI have sent shockwaves through the fintech industry, affecting not only Paytm Payments Bank but also its parent company, One97 Communications Ltd. The unfolding events prompt a reevaluation of compliance measures within the industry, emphasizing the need for robust systems to prevent regulatory interventions that could have far-reaching financial implications. The coming weeks will likely witness increased scrutiny and adjustments within the Paytm ecosystem as it navigates the challenges posed by these unprecedented regulatory actions.

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