India’s central bank has barred Paytm Payments Bank, operated by financial technology firm One97 Communications, from taking on new customers and ordered a comprehensive audit of its IT systems, citing “material supervisory concerns”. This move sent Paytm’s shares plunging and wiped out over $2 billion from its market value.
RBI Alleges Violations in Operating Paytm Payments Bank
The Reserve Bank of India (RBI) has alleged several violations by Paytm Payments Bank in its operating guidelines. As per sources, the RBI found that Paytm Payments Bank illegally allowed several wallet accounts to be opened with one single Permanent Account Number (PAN).
Over 30% of Paytm’s new accounts had a common PAN while the norm allows only one account per PAN. This essentially means one PAN was used to open several wallet accounts, which violates RBI’s guidelines.
The RBI also suspects money laundering activities as thousands of Paytm Payment Bank accounts were opened without proper Know Your Customer (KYC) documentation.
Immediate Impact of RBI’s Move
- Paytm Payments Bank has been barred from onboarding new customers with immediate effect
- Existing customers can continue to make transactions using their wallet and Rupay debit card
- But no further credits except government subsidies and incentives will be allowed in the existing accounts
- Paytm Payments Bank cannot open any new current bank accounts for its customers
- An external IT audit has been ordered to look into the bank’s IT systems
This clampdown by RBI has raised concerns among customers about the safety of their money as Paytm is one of the largest payments bank and digital wallet companies in India with over 400 million registered users.
Behind the Scenes – Mounting Troubles for Paytm
Paytm Payment Bank has been under the RBI scanner over alleged violations of ownership guidelines in the past as well.
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In 2022, Paytm had to refund Rs 10 crore to users to comply with RBI’s direction over the proportion of payments bank deposits that can be held in current accounts and other liquid assets.
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Earlier in 2018, the payments bank was prohibited from onboarding new customers for nearly six months after RBI found violations in data localisation norms.
Such repeated run-ins with the regulator indicate inadequate internal controls and compliance mechanisms. Industry experts have slammed Paytm’s lackadaisical approach despite being in a highly regulated sector.
Share Price Crashes over Two Days
As soon as the RBI restrictions became public on February 2nd, Paytm’s shares went into a tailspin, nosediving over 20%. The stock hit lower circuit again the next day, crashing another 13% before bourses revised its daily trading limit. Over $2.1 billion of its market value has been wiped out in just two days.
Paytm’s share price has tanked nearly 60% from its IPO issue price of Rs 2,150 in November 2021. At one point, the company was valued at over $16 billion but its current market cap stands at just around $4 billion.
| Date | % Change | Share Price | Market Cap |
|---|---|---|---|
| Feb 1 (Before news) | Rs 545 | $8.12 billion | |
| Feb 2 (After RBI bar) | -20% | Rs 436 | $6.53 billion |
| Feb 3 | -13% | Rs 381 | $5.71 billion |
What Lies Ahead for the Beleaguered Firm
While existing customers will face minimal disruption for now, the path ahead looks difficult for Paytm unless it manages to fix issues flagged by the regulator.
As per analysts, it may take Paytm Payments Bank at least 12-18 months to comply with the RBI diktat and lift the ban on onboarding new customers. Till then, rivals like PhonePe and Google Pay may eat into Paytm’s market share.
There could also be more skeletons tumbling out of the closet as the RBI ordered audit may reveal further violations. Paytm Payments Bank has clarified there is no money laundering probe against it though reports suggest the Enforcement Directorate may start an investigation soon.
If irregularities continue, analysts warn that RBI may take more punitive actions like cancelling the payments bank license altogether, which will deliver a body blow to the One97 Group.
So Paytm finds itself in a battle for survival unless it quickly gets its house in order. The company has reiterated its commitment to comply with regulations to continue serving its customers.
What Should Customers Do?
While current customers can continue to use their Paytm wallets and debit cards for payments and transfers, new users will need to look for alternatives.
Industry experts advise that there is no need for existing users to panic and withdraw their money, but at the same time, they should start exploring other payments apps as well. Diversification across 2-3 credible platforms makes sense from a risk perspective.
Most other payments banks and wallets like Google Pay, PhonePe, Amazon Pay, Mobikwik are still fully functional. So users have plenty of tested options to choose from if they plan to reduce dependence on Paytm.
The coming days will decide whether India’s once poster boy of fintech manages to rise from the ashes. But clearly its ambitions to become India’s first financial super app lies in tatters for now.
To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.
