RBI bans Paytm from adding new customers RBI announced that it has banned Paytm Payments Bank from adding new customers with immediate effect. It has also directed the payments bank branch to appoint an outside firm to conduct a comprehensive IT audit. RBI indicated that it will take a call on allowing Paytm Payments Bank to onboard customers only after reviewing the IT audit report.
“The Reserve Bank of India today, in exercise of its powers, inter alia, under section 35A of the Banking Regulation Act, 1949, directed Paytm Payments Bank Ltd., with immediate effect, to prohibit the addition of new customers is,” the central bank said in a statement.
According to RBI, the action was taken following material supervisory issues in the payments bank. Paytm is yet to comment on the development, but some reports suggest that several factors, including violation of norms related to Know Your Customer (KYC), data storage, data privacy and outsourcing of data, could be behind the RBI move. can.
Impact on Paytm Customers
The latest bar on Paytm Payments Bank will not have any effect on existing Paytm users. They will be able to do their app related transactions as usual.
However, the latest RBI action comes at a time when Paytm was eyeing to upgrade its payments bank to a small finance bank license after five years of operation in May this year. Hence, the latest RBI directive may be a cause for concern on that front.
impact on business
“We do not expect the impact on Paytm’s business from this ban to be substantial, as Paytm has already added a very large customer base to the payments bank. However, we expect Paytm to have a significant impact on the brand and customer loyalty going forward.”
Meanwhile, an industry source said, “This will impact Paytm’s business. Also, there could be reputation concerns, given that Paytm was earlier banned by the RBI from inducting new customers after the RBI identified loopholes in Paytm’s KYC procedures.
According to Macquarie, the recent developments have substantially reduced the chances of Paytm upgrading to the small finance bank licence. The company is scheduled to apply for the license in May 2022, after the Payments Bank completes five years.
Paytm Payments Bank was incorporated in August 2016 and formally started its operations in May 2017 from a branch in Noida. As per the last disclosed numbers, PPBL had around 64 million subscribers.
This is not the first time that Paytm and Paytm Payments Bank led by Vijay Shekhar Sharma have run into trouble with the RBI. RBI had in June 2018 also prohibited PPBL from inducting new customers due to supervisory concerns. The restrictions were lifted on December 31, 2018.
The central bank had also issued a show-cause notice to the firm on July 29, 2021, stating that Paytm Payments Bank had committed an offense under the Payment and Settlement Systems Act, 2007, by giving false information to the RBI on completion of the transfer. was confirmed to be. Bharat Bill Payment Operating Unit Business to PPBL by One97 Communications.
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