RBI Instructs Paytm Payments Bank To Stop Allowing New Customers Immediately

The Reserve Bank of India (RBI) has ordered Paytm Payment Bank to halt onboarding new customers with immediate effect, in a setback for the digital financial services provider. The central bank has asked Paytm Payments Bank to appoint an information technology audit firm to perform a complete system audit of its IT system, based on some substantial supervisory issues found in the bank.

“Action against Paytm Payments Bank Ltd under section 35 A of the Banking Regulation Act, 1949. The RBI has today, in the exercise of its powers, inter alia, under section 35A of the Banking Regulation Act, 1949, directed Paytm Payments Bank Ltd to stop, with immediate effect, onboarding of new customers,” a press release from RBI said.

“The bank has also been directed to appoint an IT audit firm to conduct a comprehensive System Audit of its IT system. Onboarding of new customers by Paytm Payments Bank Ltd will be subject to specific permission to be granted by RBI after reviewing the report of the IT auditors. This action is based on certain material supervisory concerns observed in the bank,” RBI added.

Paytm Payments Bank is expected to request RBI for a small finance bank (SFB) licence by June, according to a Moneycontrol report.

“I think the application for SFB licence will be moved sometime around May-June next fiscal year,” it quoted a source familiar with the matter.

Vijay Shekhar Sharma, the founder, and CEO of Paytm, suggested last year that becoming a small finance bank will alleviate a lot of payment issues. One 97 Communications (Paytm) indicated its intention to apply for conversion into an SFB in a draught red herring prospectus filed with SEBI prior to its first public offering (IPO) last year.

Existing payment banks having a successful track record of at least five years can apply to be converted into SFBs, according to RBI criteria. In 2017, the Reserve Bank of India granted Paytm Payments Bank a licence to operate as a payments bank.

Paytm Payments Bank was established in August 2016 and started operations in May 2017 from a Noida branch. HDFC Bank was forbidden by the RBI from introducing any new digital products or services or issuing new credit cards unless it rectified recurring technical concerns in December 2020.