“The bank is not complying with provisions of Section 22 (3) (c) of the BR Act,” stated the Reserve Bank of India (RBI). This statement comes as the RBI has officially cancelled the banking licence issued to Paytm Payments Bank Limited.
As of early Tuesday, Paytm Payments Bank is prohibited from conducting any business. The RBI cited detrimental management practices and ongoing compliance failures as primary reasons for this drastic measure.
The RBI has been monitoring Paytm Payments Bank since 2018. Multiple compliance concerns have plagued the institution over the years. The bank’s management was deemed prejudicial to the interests of depositors and public welfare.
Within hours of the announcement, it became clear that Paytm Payments Bank had enough liquidity to repay its entire deposit liability upon winding up operations. However, this does not mitigate the severity of the situation.
The RBI had previously barred Paytm Payments Bank from accepting deposits or top-ups in customer accounts after February 29, 2024. They also imposed a penalty of Rs 5.39 crore in October 2023 for various violations.
Notably, violations related to know-your-customer (KYC) norms were highlighted as key issues by the RBI. The bank failed to comply with conditions stipulated in its Payments Bank license.
In a follow-up action, the RBI plans to apply to the High Court for winding up Paytm Payments Bank. They assert that no useful purpose would be served by allowing the bank to continue operations.
Vijay Shekhar Sharma holds a 51% stake in Paytm Payments Bank, while One97 Communications owns 49%. The future remains uncertain for both entities as they navigate this regulatory turmoil.
