The Reserve Bank of India (RBI) on Wednesday ordered Paytm Payments Bank to stop accepting fresh deposits in its accounts or popular wallets after February 29, 2024. The central bank also barred the payments bank from issuing new FASTags, which are used for electronic toll collection on highways.
The RBI’s action came after it found several violations of the licensing norms and operational guidelines by Paytm Payments Bank. Here are some key points to know about this development:
What is a Payments bank?
A payments bank is a type of bank that can accept deposits up to Rs 1 lakh per customer, offer basic savings and current accounts, and provide remittance services. However, unlike regular banks, payments banks cannot lend money or issue credit cards. They can only issue debit cards and prepaid cards. Payments banks are meant to cater to the unbanked and underbanked segments of the population, especially in rural areas.
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Why did RBI take action against Paytm Payments Bank?
According to the RBI, Paytm Payments Bank violated several rules and regulations, such as:
- Failing to maintain the minimum net worth of Rs 100 crore as per the licensing conditions.
- Engaging in unauthorized activities such as lending and cross-selling of third-party products, which are not permitted for payments banks.
- Not complying with the KYC (know your customer) and AML (anti-money laundering) norms.
- Not reporting some transactions to the Financial Intelligence Unit (FIU), which monitors suspicious and fraudulent activities.
- Not having a robust governance structure and internal controls.
What are the Consequences of RBI’s order for Paytm Payments Bank?
The RBI’s order means that Paytm Payments Bank cannot open new accounts or wallets, or issue new FASTags, until it rectifies the deficiencies and complies with the regulatory requirements. Existing customers can continue to use their accounts and wallets, but they cannot add more money to them.
They can also use their existing FASTags, but they cannot recharge them or buy new ones from Paytm Payments Bank. Customers who want to close their accounts or wallets can do so by contacting the customer care of Paytm Payments Bank.
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What are the alternatives for Paytm Payments Bank customers?
Customers who want to open new accounts or wallets, or buy new FASTags, can opt for other payments banks or regular banks that offer these services. Some of the other payments banks operating in India are Airtel Payments Bank, India Post Payments Bank, Jio Payments Bank, and NSDL Payments Bank. Customers can also choose from various banks that provide FASTag services, such as HDFC Bank, ICICI Bank, Axis Bank, SBI, Kotak Mahindra Bank, and others.
Paytm Likely To Lose Over ₹500 Crore Due To RBI Action (Estimated)
According to some reports, Paytm expects to lose Rs 300-500 crore after RBI’s action on its payments bank. This is because the payments bank contributes a significant share of Paytm’s revenue and profit, and the RBI’s order will affect its customer base and transaction volume.
The payments bank also earns commissions from issuing FASTags, which are now banned by the RBI. Paytm said it expects to “continue on its trajectory” to improve its profitability, despite the RBI’s order.
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What is the future of Paytm Payments Bank?
Paytm Payments Bank has said that it is working closely with the RBI to resolve the issues and resume its normal operations as soon as possible. The payments bank has also assured its customers that their money is safe and secure, and that they can access their accounts and wallets anytime.
Paytm Payments Bank is one of the largest players in the digital payments space, with over 60 million customers and 30 million FASTag users. It remains to be seen how the RBI’s action will affect its growth and reputation in the long run.
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