The Reserve Bank of India (RBI) has cancelled the banking licence of Paytm Payments Bank Limited. The action was expected, albeit just a formality. The central bank effectively shut down Paytm’s payments bank business in February 2024, when it banned the fintech company from accepting fresh deposits or top-ups in its Payments Bank accounts, wallets, and FASTags. These measures were in addition to a previous restriction on the Payments Bank, barring it from onboarding new customers since March 2022.
Why this matters: In January last year, the Paytm founder Vijay Shekhar Sharma told Bloomberg that he expected the Payments Bank to return to business soon. “We’ve learnt our lessons, and we’ve dramatically changed our approach towards the business,” he said.
However, the formal cancellation of the Payments Bank licence has all but shattered that hope. Sharma owned a 51% stake in the bank, and the remaining stake was held by One97 Communications, which owns the Paytm brand.
Had the Payments Bank run smoothly for five years, it could have converted into a Small Finance Bank. That would have allowed Paytm to also enter the lucrative lending business.
What the RBI has said now: The Payments Bank’s operations were conducted in a manner “detrimental to the bank and its depositors” in violation of Section 22 (3)(b) of the Banking Regulation Act, 1949 (BR Act).
- The bank’s management was prejudicial to the interests of depositors and the public. Therefore, it flouted the provisions of Section 22 (3)(c) of the BR Act, which stipulate that regulators grant or maintain a banking license only if a bank’s proposed or existing management does not prejudice the public interest or the interests of its depositors.
- Allowing the bank to operate as envisaged in Section 22 (3)(e) of the BR Act would not have served any useful purpose.
- The bank failed to comply with the conditions stipulated in its Payments Bank license, thereby violating Section 22(3)(g) of the BR Act. Failure to comply with these conditions, particularly those crucial for protecting depositors, can result in the cancellation of the license.
- The RBI stated that, effective April 24, 2026, it now prohibits Paytm Payments Bank from conducting the business of ‘banking’ as defined in Section 5(b) or any additional business specified under Section 6 of the BR Act.
What is Paytm’s response? In a statement, the company said its Payments Bank has sufficient liquidity to repay all customer deposits.
- The directive does not affect user deposits in the bank’s savings or current accounts, prepaid instruments, wallets, FASTags, or National Common Mobility Cards. However, Paytm did not clarify whether users could withdraw or transfer these funds or if there was a temporary freeze.
Under the RBI scanner since 2018: Paytm Payments Bank has been in the regulator’s crosshairs since at least 2018 due to…
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