The RBI has today, in the exercise of its powers, inter alia, under section 35A of the Banking Regulation Act, 1949, directed Paytm Payments Bank Ltd to stop, with immediate effect, onboarding of new customers,” a press release from RBI said. Based on certain material supervisory concerns observed in the bank, the apex bank has directed Paytm Payments Bank to appoint an information technology audit firm to conduct a comprehensive system audit of its IT system.
Onboarding of new customers by Paytm Payments Bank Ltd will be subject to specific permission to be granted by RBI after reviewing the report of the IT auditors. This action is based on certain material supervisory concerns observed in the bank. Paytm Payments Bank was incorporated in August 2016 and formally began its operations in May 2017 from a branch in Noida.
What Went Wrong?
According to the reports, a recent supervisory audit by the RBI had found violations in know your customer norms. A significant number of dormant accounts were found at Paytm Payments Bank, which was opened without conducting adequate KYC on the depositors. The regulator had questioned the payments bank on this, to which the bank had responded. However, it appears that the regulator was not satisfied with the responses it got from Paytm Payments Bank and imposed the latest restrictions.
Paytm Payments Bank had 64 million savings accounts as of March 31, 2021, and over Rs 5,200 crore in deposits. It was also the largest Unified Payments Interface beneficiary bank, with the lowest technical decline rate among beneficiary and remitter banks. Further, in December, Paytm Payments Bank emerged as the biggest receiver of UPI amounts with 926.17 million transactions while public sector bank SBI topped the chart of being the biggest remitter in December, according to data released by the National Payments Corporation of India (NPCI).
Paytm’s Vijay Shekhar Sharma wants to convert Paytm into a small finance bank. He has claimed that moving in that direction will solve a lot of problems for the entity. This plan surfaced before Paytm filed an IPO last year. In order to get the Small Finance Bank status, payment banks need to show a clean record of at least five years.
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