RBI Orders Moratorium on Paytm Payments Bank Transactions

Reserve Bank of India The Reserve Bank of India has directed Paytm Payments Bank to stop all deposit and credit transactions after 29 February 2024. This action stems from persistent non-compliance and ongoing supervisory concerns within the bank, raising questions about the impact it has on customers.

What will be the impact on customers after 29 February 2024:

Customers of Paytm Payments Bank will face restrictions on several key transactions. No further deposits, credit transactions or top-ups will be allowed in customer accounts, prepaid devices, wallets, FASTag or National Common Mobility Card.

Customers can still withdraw funds from their accounts, but some services, including fund transfer and UPI facilities, will no longer be available.

The RBI intervention targets Paytm Payments Bank, an associate of the publicly listed entity One97 Communications. The bank, which holds a 49% stake in Paytm Payments Bank, has been found to be not compliant with regulatory standards, and has raised significant supervisory concerns.

The central bank's order extends to stopping all deposits and top-ups in customer accounts, prepaid devices, wallets, FASTags and others.

Impact on usage of PayTM App and UPI Channel:

Users can continue to use the PayTM app and UPI channel without any restrictions. It is important to note, that the PayTM app is owned by the parent company, and is not directly affiliated with PayTM Payments Bank.

Accounts linked to PayTM Payments Bank:

Sender Account:

Senders can use the app to withdraw or transfer funds from their wallet or Paytm Payments bank account without any restrictions.

Beneficiary's Account:

Beneficiaries associated with PayTM Payments Bank can get credit till 29th February 2024. Withdrawals or fund transfers are allowed from their wallet or account after this date. And from 1st March 2024, no credit or top-up is allowed in the PayTM Payments bank account or wallet.

RBI Action Begins:

Effective Date:

The RBI's action prohibiting further credit or top-up in the Paytm Payments Bank account or wallet will come into effect from March 1, 2024.

Status of Last RBI Action (March 11, 2022):

Ongoing Trade Restrictions:

The commercial ban imposed on 11th March 2022, which prevented PayTM Payments Bank from onboarding new customers, and will remain in force. The recent action announced on 31 January 2024 is an additional measure, not a replacement.

Prepaid devices, FASTags, NCMC transit cards, etc.

Balances in prepaid devices, FASTags, NCMC Transit Cards, etc. can be used, withdrawn or transferred without any restrictions. Any top-up or additional credit to these accounts is allowed only till 29th February 2024.

Compliance Crisis and System Audit:

This follows RBI's comprehensive system audit report and compliance verification report conducted by external auditors. Paytm Payments Bank was directed by the RBI in March 2022 to appoint an income tax audit firm for a complete system audit of its IT infrastructure. And concerns of noncompliance were first raised in 2022, which led to an ongoing investigation.

"The comprehensive system audit report and subsequent compliance verification report of external auditors revealed persistent non-compliance and continued content supervisory concerns in the bank, necessitating further supervisory action," the RBI statement said. "

Timeline of Regulatory Directives:

This latest directive comes in the wake of RBI's previous directive in March 2022, ordering Paytm Payments Bank to stop onboarding of new customers immediately. The apex bank has now gone a step further, it has directed to terminate the nodal accounts by 29th February 2024 and settle all pipeline transactions and nodal accounts by 15th March 2024, after which no further transactions are allowed.

After 29th February 2024, no deposit or credit transaction or top up will be allowed in any customer account, prepaid device, wallet, FASTags, NCMC card etc. other than any interest, cashback or refund, which can be deposited anytime.

RBI said that withdrawal or use of balances from their accounts including savings bank accounts, current accounts, prepaid devices, FASTags, National Common Mobility Card etc. by the customers of the bank will be allowed without any restriction to their available balance.

It said that no other banking services such as fund transfer (irrespective of name and nature of services like AEPS, IMPS etc.), BBPOU and UPI facility should be provided by the bank after February 29, 2024.

"The nodal accounts of One97 Communications Limited and Paytm Payments Services Limited are to be terminated before 29th February 2024 in any case at the earliest. "

Paytm Payments Bank is grappling with regulatory fallouts, so customers are urged to pay attention to transactional changes and plan accordingly. The RBI's decision reflects the commitment to maintain the integrity of the banking system and ensure compliance with established norms. As a key player in the Indian digital banking landscape, Paytm Payments Bank now faces a significant period of transformation and scrutiny, as it works towards resolving the issues identified.