Paytm Bank fiasco: Are your investments using Paytm Money safe?

Paytm | CMP Rs 452.8 | Paytm stock gained 3.26 percent, recovering from a 42 percent fall the scrip has in the last three trading sessions, after RBI imposed restrictions on its lending business. The stock is still down 40 percent from the last 5 sessions.

On January 31, 2024, the RBI imposed restrictions on Paytm Payments Bank Ltd (PPBL), prohibiting it from accepting fresh deposits and extending credit services with  effect from February 29. Existing customers will be allowed to withdraw their money till their balances last, and no end date has been specified for the same.

This decision from the central bank comes after prohibiting PPBL  from onboarding new customers in March 2022.

Here’s an explainer on how Paytm users will be affected:

What led to this?

RBI had issues with PPBL for non-compliance with know-your-customer (KYC) norms, non-compliance with KYC norms for accounts older than a year, violation of money laundering norms, related-party transactions, and keeping more money than allowed in a payment bank account.

“This is more of a speed bump. We believe in partnership with banks," said Vijay Shekhar Sharma, Founder and CEO, Paytm in a press conference after the RBI announcement. ``Two years ago, an embargo was placed onboarding new customers, so we had already started to work with banks, and we will continue to reduce our dependence on PPBL.’’

Will RBI’s action impact my investments made through Paytm Money?

Customers of Paytm Money Ltd (PML) are concerned that their investments in equities, mutual funds, or the National Pension System (NPS) made using the platform would be impacted. PML is a fintech platform where you can buy MFs and some other financial instruments.

There will be no impact on the operations of Paytm Money. You can continue investing, redeeming, and trading through PML, according to a statement issued by the firm.  “But investors who have set PPBL as their default bank account for funds transfer while investing will need to change the same before February 29,” posted Paytm on X. The process to change the bank account will be communicated by PML. This holds for systematic investment plans (SIPs) as well.

Your investments in equities, bonds, and exchange-traded funds (ETFs) are all secured in your Central Depository Services Limited (CDSL) demat account, and transactions relating to them can only be done with your authorisation. Similarly, your mutual funds are with the mutual fund houses themselves, which are trusts overlooked by trustees, and managed by asset management companies. The structure of a mutual fund is such that no one other than an investor can claim the money. Hence, your investments/redemptions via PML can continue.

Also read: RBI action against Paytm: What would be mutual fund managers’ reaction?

“Funds that are transferred to PML’s trading account are, per SEBI regulations, transferred to the Indian Clearing Corporation Ltd (ICCL) of BSE, and are thus lying with the ICCL under your name,” Paytm had posted on the social media platform X.

Can I continue to buy and sell digital gold through the Paytm app, and access my gold investments?

Yes, you can continue to buy and sell digital gold using the Paytm app. “This has no relation to the recent RBI directives on PPBL. Investments in gold through the Paytm app are safe and protected with MMTC-PAMP,” Paytm had shared on X. Digital gold is safely stored within MMTC-PAMP's secure and insured vault, and you can continue to invest and redeem.

After February 29, will my FASTag stop working?

No. You can continue using the existing balance on your Paytm FASTag. “PBBL had started working with other banks over the last two years and now we will accelerate. Products like FASTags are already distributed by other banks,” said Bhavesh Gupta, President and COO, Paytm, during the press conference. You can top-up the balance on your FASTag from your account with partner banks. Some of the banks issuing the FASTag on the Paytm app are IDFC First Bank, ICICI Bank, HDFC Bank, Kotak Mahindra Bank, etc.

Will my Paytm national common mobility card be deactivated and stopped working after February 29?

No, your National Common Mobility Card (NCMC) won’t stop working after February 29.

NCMC is an inter-operable transport card rolled out by the Union Ministry of Housing and Urban Affairs. Cardholders can use it to pay for their travel on metros and buses all over India. It can also be used to pay for retail shopping and online transactions.

You can continue to use the existing balance on your Paytm NCMC card. Paytm has partnered with other banks for top-up and issuance of the card. “We are working on ensuring a seamless customer experience and will keep you updated on partnering with other banks for the NCMC card,” said Gupta during the press conference.

Will the RBI restrictions impact the Paytm app, or UPI transactions made through the Paytm app?

No. Users can continue using Paytm and UPI through Paytm without any restriction as the app is owned by the parent company One97 Communications Limited and not PPBL.

I am a merchant with a PPBL account. What do I need to do to ensure the continuity of my day-to-day transactions using POS QR codes and soundbox devices?

The bank accounts linked to PPBL-powered QR codes at merchant outlets will need to be changed to that of any other partner bank.   “This will be a large exercise, the new acquisitions will immediately start in a week or two", explained Gupta.