The Reserve Bank of India on Wednesday issued a notification of its supervisory action against Paytm Payments Bank. India’s central bank has imposed restrictions on Paytm Payments Bank that prevent it from accepting new deposits or onboarding new customers from February 29, 2024.
In a release, the RBI noted that the move comes as a response to the revelations by its audit reports, which it describes as “persistent non-compliances and continued material supervisory concerns” with the bank, under Section 35A of the Banking Regulation Act, 1949. The central bank’s directive specifically bars Paytm Payments Bank from engaging in any deposit-taking, credit services, or fund transfers starting March 2024. Existing customers will not be able to add or deposit money to their accounts or wallets beyond the set date, though the RBI assures that there are no restrictions on withdrawing current balances.
Update: Paytm Payments Bank Limited, an associate of Paytm receives RBI directions. Paytm to expand its existing relationships with leading third-party banks to distribute payments and financial services products.
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— Paytm (@Paytm) January 31, 2024
This decision has led to Paytm assuring its customers through emails and messages that their money remains secure and accessible despite the new limitations. In a stock market filing, the company said that it is taking “immediate steps” to comply with the directives, aiming to mitigate the financial fallout and continue its path toward profitability. Paytm has also indicated plans to relocate services affected by the ban, such as wallets, FASTags, and NCMC accounts, to other banks, ensuring continued service availability for its users.
“Depending on the nature of the resolution, the Company expects this action to have a worst case impact of Rs. 300 to 500 crores on its annual EBITDA going forward. However, the Company expects to continue on its trajectory to improve its profitability,” said One 97 Communications, which wholly owns Paytm Payment Services and major shareholder of Paytm Payments Bank.
In the wake of this regulatory action, One97 Communications, experienced a significant downturn, with its stock value plummeting by 20% to a six-week low of Rs 609, erasing approximately $1.2 billion in market value. Analysts have downgraded the stock and revised their earnings expectations, citing increased uncertainty around Paytm’s business model and profitability trajectory in light of the regulatory challenges.
Paytm Payments Bank’s operations have been under scrutiny since March 2022, when the RBI first directed it to halt adding new customers. Subsequent audits and reports highlighted ongoing non-compliance issues and supervisory concerns, prompting the RBI’s current intervention. For Paytm Payments Bank customers, this development means they must explore alternative banking and financial services for depositing funds and executing credit transactions post-February 2024. While the bank has clarified that there are no restrictions on transferring existing balances, the inability to add funds could inconvenience users reliant on Paytm for daily transactions and financial services.