The Reserve Bank of India (RBI) is considering cancelling the licence of the crisis-ridden Paytm Payments Bank after the March 15 deadline to close the business and settlement of transactions runs out, sources have told Moneycontrol.
“That’s the intention as of now,” said one of the sources on condition of anonymity, in a growing sign of trouble for Paytm’s payment bank which is already facing an existential crisis.
The RBI has directed the payments bank to settle all pipeline transaction and nodal accounts by March 15 and said no further transaction shall be permitted thereafter.
The banking regulator thinks that the cancellation of the permit is logical step at this point after repeated non-compliance of the regulations compelled the RBI to slap major business restrictions on the Payments Bank, effectively ending its operations by February 29.
A final call on the licence cancellation would be taken in the days ahead, sources said.
Also read: Tough times ahead for Paytm Payments Bank as RBI refuses any concessions
Regulatory firestorm
On February 6, Paytm promoter Vijay Shekhar Sharma reportedly met finance minister Nirmala Sitharaman. Earlier, Paytm top executives held discussions with the RBI brass as well.
Separately, there are reports of the central bank weighing the option of superseding the Paytm Payments Bank.
Moneycontrol couldn't verify the reports independently.
The RBI on January 31 imposed major business restrictions on Paytm Payments Bank including accepting fresh deposits and doing credit transactions after February 29.
The central bank said a Comprehensive System Audit report and subsequent compliance validation report of the external auditors revealed persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action.
No further deposits or credit transactions or top-ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024, other than any interest, cashbacks, or refunds which may be credited anytime, the RBI said.
It, however, said the withdrawal or utilisation of balance by the customers from their accounts, including savings bank accounts, current accounts, prepaid instruments, FASTags, National Common Mobility Cards, etc. will be allowed without any restrictions till the available balance is exhausted.
On March 11, 2023, the RBI barred Paytm Payments Bank from onboarding new customers.
On February 6, the stock of One 97 Communications, the parent company of Paytm, close at Rs 463 on the National Stock Exchange, up 2.63 percent, after falling over 40 percent in the previous three sessions.
Why did the RBI clamp down on Paytm Bank?
Moneycontrol has reported that the RBI decided to act against Paytm Payments Bank after observing a complete disregard for regulatory standards and compliance requirements, thus raising serious concerns about the promoters’ as well as the group’s commitment to transparency.
"The present action by the RBI is to protect the financial system and prevent a payment bank, which is a RBI regulated entity dealing in public money, being run in a manner detrimental to the interest of its depositors, customers, and other genuine stakeholders," a source told Moneycontrol.
Major regulatory breaches
The banking regulator found major irregularities in KYC, which exposed the customers, depositors, and wallet holders to serious risk. These include the absence of KYC for a very large number of customers (running into lakhs), PAN validation failures in lakhs of accounts, and single PAN for multiple customers, the person quoted above said.
During its probe, the RBI also found that in thousands of cases, the same PAN was linked to more than 100 customers and in some cases to more than 1,000 customers. The it also found that the total value of transactions, running into crores of rupees, was beyond regulatory limits in minimum KYC pre-paid instruments, raising money-laundering concerns.
The regulator found that there was an unusually high number of dormant accounts, which are prone to be misused as mule accounts. There are also concerns relating to money-laundering arising from deficiencies in the KYC processes and lack of transaction monitoring system.
In lakhs of cases, the accounts and wallets have been frozen by various law enforcement authorities across the country, as these were used for committing digital frauds, the RBI probe found.
PPBL’s financial and non-financial business was co-mingled with its promoter group companies in violation of licensing conditions and RBI directions on the matter.
Responding to the RBI action, Paytm told the exchanges that it is "taking immediate steps to comply with RBI directions, including working with the regulator to address their concerns as quickly as possible.
Further, the company said depending on the nature of the resolution, it estimates the worst-case impact at Rs 300-500 crore on its annual EBITDA. "However, the company expects to continue on its trajectory to improve its profitability," Paytm added.
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