What went wrong with the Paytm Payments Bank and the RBI ban? Here’s what We Know So Far

Paytm stock has dropped 43% since January 31. The price of each share is almost at an all-time low of Rs 438.35. Withdrawals from Paytm Payments Bank Ltd (PPBL) stopped on February 29 because of “persistent non-compliance” by the Reserve Bank of India (RBI). This led to the sell-off.

At Rs 456.15 a share on Tuesday morning, Paytm shares were up more than 4%.

The order said that PPBL could not do any banking activities, such as taking deposits, credit transactions, wallet top-ups (not even from FASTags), or bill payments.

Later, on February 2, Bloomberg reported that the RBI is also thinking about taking away Paytm Payments Bank’s license to operate as soon as next month once the depositors are safe. 

“No final decision has been reached yet, and the RBI’s thinking may change based on Paytm’s representation,” the report stated.

What does Paytm Payments Bank do?

3d render money transfer mobile banking online

Paytm Payments Bank Ltd (PPBL) works with One97 Communications Limited (OCL). Vijay Shekhar Sharma owns 51% of the company’s shares, while One97 Communications owns the other 49%.

The PPBL began doing business on May 23, 2017. It lets people do digital banking, with services like savings accounts and checking accounts, set deposits with partner banks, and check account balances in wallets, UPI, and FASTag.

Per their rules, payment banks can only take up to Rs 2,000,000 deposits and cannot give any money.

With PPBL, you can also use Paytm Wallet. According to RBI’s preliminary statistics for December 2023, people who used the Paytm Wallet bought goods and services worth more than 8,000 crore in 247.2 million transactions, and they sent money worth more than 5,900 crore in 20.7 million transactions.

What changes will the RBI order make for customers?

3D hand using online banking app on smartphone

People must wait to add money to or put into their customer accounts, wallets, FASTags, or other devices after February 29. Customers can freely take money out of or use it in their accounts, such as savings bank accounts, current accounts, prepaid instruments, FASTags, and National Common Mobility Cards, as long as they don’t exceed their available amount.

Users of the Paytm Wallet can still make purchases until February 29. If they don’t add any money to their account after February 29, they can use the money they already have until it runs out.

The same rule is used for PPBL accounts, services tied to Paytm wallets like FASTag, and the National Common Mobility Card, used to ride the metro and other public transportation.

How long has the RBI been watching Paytm Payments Bank?

The bank supervisor had been pointing out problems a lot.

In 2018, the RBI briefly stopped people from opening new accounts with PPBL because they needed to break the rules for licensing and follow Know-Your-Customer (KYC) rules. Later, in 2021, RBI said it had found out that PPBL had given false information. It got a Rs 1 crore fine.

The RBI told PPBL on March 11, 2022, that they could not immediately take on any new users. It has also been said that the bank needs to hire an IT audit company to audit its IT system thoroughly. Paytm Payments Bank Ltd will only be able to take on new customers with special permissions from RBI, which will be given after they review the IT auditors’ report. “This action was taken because of important supervisory concerns seen in the bank,” the RBI said in a March 11, 2022 notice.

As of October 2023, the RBI had fined PPBL Rs 5.39 crore for continuing to break KYC rules.

Now, sources say that RBI cracked down on businesses run by Vijay Shekhar Sharma because they were suspected of money laundering and doing shady business with hundreds of crores of rupees between the well-known wallet Paytm and its less well-known banking arm.

However, the big name in fintech has made it clear that it is not being investigated for foreign exchange violations.

A recent story from PTI said that PPBL had lakhs of accounts that didn’t follow KYC rules and that the same PAN was used to open more than one account in thousands of cases.

Is Paytm UPI still available?

Person scanning qr code

If you use the Paytm app for UPI and wallet payments, even if your bank account is with a different bank, you should be able to keep using it regularly. But from February 29, you must stop using the bank account. The RBI’s move goes against Paytm’s banking operations. Customers can still use Paytm to pay for things online if their bank account is linked to a different bank. 

What will happen if you connect your Paytm app to your fund’s bank account?

You can use the app to send or receive money from your wallet or account without any limits. From March 1, account users will not be able to receive money, but they can move money out of their wallets and bank accounts.

What should you do if you use Paytm Fastag or its official card for moving around?

RBI has let customers clear their balances, but from March 1, 2024, they can only add so much money to these assets.

How did Paytm answer?

Paytm said it is talking with the RBI about following their instructions. It also said that its financial services, like loan distribution, insurance distribution, and stock broking, have nothing to do with PPBL and should not be impacted. The business also said it would “accelerate” its relationships with other banks to keep providing services.

The company will still give offline merchant payment network services, such as Paytm QR, Soundbox, and Paytm Card Machine. It can also add new offline merchants to these services.

It does, however, take a 300–500 crore hit to its yearly operational profit.

Does the company want to sell its wallets business?

Reports in the media also said that the company wants to sell its wallets business. HDFC Bank and Mukesh Ambani’s Jio Financial Services Ltd (JFSL) are the top candidates to buy it.

JFSL has now denied the stories. Paytm has also said it has no plans to do anything about it. So far, HDFC Bank hasn’t said anything about it. 

What do you think?

Written by Shivam Pal

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