In a recent development, Paytm Payments Bank Ltd (PPBL) finds itself at a crossroads as the Reserve Bank of India (RBI) takes stringent measures, prohibiting fresh deposits and top-ups effective February 29, 2024. The move has triggered a series of concerns about the future of PPBL, as well as speculation within the industry regarding the potential cancellation of its license.
At the heart of the matter is the RBI’s directive that the aggregate customer balance limit for PPBL customers should not exceed Rs 2 lakh by the end of the day. Despite the regulatory framework, both PPBL and its parent company, Paytm, have refrained from disclosing the actual deposit base of PPBL, leading to increased scrutiny.
The Comprehensive System Audit report has played a pivotal role in highlighting persistent non-compliances and material supervisory concerns within PPBL. This, coupled with the lack of transparency, has raised questions about the effectiveness of governance, especially considering the presence of seasoned banking professionals on the PPBL board.
Key figures in the banking industry, including AK Jain, former executive director of Punjab and Sind Bank, Manju Agarwal, former Deputy managing director of State Bank of India, and others, were part of the PPBL board. Despite their collective experience, compliance with RBI norms appears to have been overlooked.
In a significant setback in October 2023, the RBI imposed a fine of Rs 5.39 crore on Paytm Payments Bank, citing deficiencies in regulatory compliance. The violations included a failure to identify beneficial owners, neglect in monitoring payout transactions, breaching regulatory balance limits, and delayed reporting of a cybersecurity incident. One97 Communications, with a 49% stake in PPBL, and Paytm founder Vijay Shekhar Sharma, holding the remaining 51%, faced the repercussions.
Under the recent RBI directive, customers will be unable to make fresh deposits or add money to their Paytm Payments Bank accounts post February 29, 2024. However, there are no restrictions on withdrawing funds from existing balances, with PPBL assuring customers of the safety of their current balances.
Acknowledging the disruption in business, Paytm anticipates a return to normalcy by early March. Operational changes are underway, and efforts are being made to facilitate the transition of customer mandates from PPBL bank accounts to accounts with alternative banks.
Addressing concerns about data sharing, Paytm asserts that customer data for those using the wallet or UPI handle of Paytm Payments Bank resides exclusively within the bank. It emphasizes compliance with regulatory and legal standards, dismissing any data sharing issues.
Despite these assurances, industry experts anticipate a potential impact on the valuation of fintech players, creating a period of “fintech discounts” as trust issues surrounding compliance and regulatory adherence are addressed.
As the situation unfolds, Paytm and PPBL are actively engaging with relevant authorities to explore migration options. However, the uncertainty surrounding the potential cancellation of PPBL’s license looms large, casting shadows on the broader implications for the fintech industry.