Mannat Saini, Pune
The Reserve Bank of India has mandated Paytm Payments Bank to halt its business. Post 29th February 2024, no transactions will be allowed or facilitated through Paytm Payments Bank’s products. These products are – Savings Bank Account, Fastag, Wallet, and National Common Mobility Cards. Immediate payment services such as Aadhar-enabled payments and unified payments interface (UPI) are also to be suspended.
RBI has also expunged 300 million wallets, 30 million bank accounts, 1.6 billion UPI transactions a month and 8 million fastags.
What does it mean for users?
All UPI IDs ending with ‘@paytm’ would be suspended, even if they are linked to any different bank accounts. These payments are authorized via Paytm Payments Bank which will not be operational, leading to lack of support to these UPI handles.
Merchants using Paytm are at risk of losing their earnings since payments made by scanning a Paytm QR code are first transferred to Paytm Payments Bank’s nodal account before finally reflecting in the merchant’s account.
Individuals tied in loans and EMIs through a Paytm Payments Bank account would need to set up an alternative account for the same. Customers using their Paytm accounts for loans and EMIs need to act fast in order to avoid these loans from turning into NPAs.
Link to timeline:
https://www.preceden.com/timelines/1047911-decline-of-paytm/ea3c869fd989191d
Explainer
In India, all banking agencies require a license from the Reserve Bank of India under Section 22 of Banking Regulation Act, 1949. This act mandates the bank’s overall responsibility towards Indian citizens and creates provisions for RBI to act as a regulatory body overlooking the bank.
Within the same process, the capital equity required by an agency or company to obtain a Payments Bank Licence is Rs 100 Crore. Paytm obtained this license in 2015, becoming operational in 2017.
In June 2018, RBI banned Paytm from onboarding any new customers for accounts and wallets owing to non-compliance of KYC (Know Your Customer) rules issued earlier. Post an audit leading to the removal of chief executive Renu Satti, Paytm resumed business in 2019 when the ban was lifted.
RBI governs banks under the Reserve Bank of India Act, 1934. The schedule 2 of this act houses the list of scheduled banks that are eligible for low interest loans from RBI. In 2021, Paytm listed itself as a scheduled bank.
However, RBI directed Paytm to stop onboarding new customers in order to conduct an IT systems audit in May 2022. In October 2022, Paytm Payments Bank received the final report of the RBI appointed auditor. In November of the same year, RBI rejected Paytm’s payment aggregator license application.
Owing to non-compliance with KYC regulations, RBI imposed a Rs 5.4 Crore fine on Paytm in 2023. Eventually, in January 2024, National Highways Authority of India banned Paytm from selling Fastags.
Ongoing issues back and forth between partners such as ONCL have led to issues for Paytm, which now only has one month to save grace. Former CIO of RBL Bank and technology consultant Sankarson Banerjee remarked, “It’s an unusual death sentence.”