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The Reserve Bank of India (RBI) has ordered Paytm Payments Bank, responsible for processing transactions for Indian FinTech Paytm, to halt its operations following persistent compliance issues. The RBI’s directive, issued on January 31, comes after an audit revealed “persistent noncompliances and continued material supervisory concerns in the bank, warranting further supervisory action.”
This move follows the RBI’s previous order in 2022, instructing the bank to cease accepting new customers until an audit was conducted. The recent audit, however, exposed ongoing compliance problems, prompting the regulator to take further action. As a result, Paytm Payments Bank is required to discontinue its banking activities after February 29.
After this date, the bank will be prohibited from accepting deposits, conducting credit transactions, or allowing top-ups on customer accounts, wallets, cards, or prepaid instruments. The specifics of the identified “noncompliances” and “supervisory concerns” have not been disclosed at this time.
In October of the previous year, the RBI had already fined Paytm Payments Bank for noncompliance, particularly regarding know your customer (KYC) regulations. The bank was found to have failed in identifying the beneficial owners of entities using its payout services and neglected to monitor payout transactions and carry out risk profiling for these entities.
Additionally, the regulator stated that the bank breached the regulatory ceiling for end-of-the-day balances in specific customer advance accounts utilizing payout services. Paytm Payments Bank was also criticized for delaying the reporting of a cybersecurity incident, raising doubts about its capability to effectively handle security threats.
This development occurs amid challenges faced by Paytm and other Indian FinTechs in adapting to recent RBI measures targeting smaller, unsecured loans. The regulator’s actions aim to prevent outsized consumer debt and delinquencies, and in response, Paytm announced a shift away from smaller loans, focusing instead on higher-ticket loans to consumers and merchants.
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