In a surprising turn of events on the evening of January 31, the Reserve Bank of India (RBI) dealt a severe blow to Paytm Payments Bank (PPBL), imposing a ban on all banking activities effective February 29. This move, described by industry experts as unusual has raised questions about the gravity of the regulatory issues leading to such strong measures.
The regulatory concerns haunting Paytm payments bank seem to have deep roots, tracing back to its inception over six years ago. The first red flag appeared within a year of obtaining its banking license in January 2017. Violations of licensing conditions, including breaches of day-end balances and non-compliance with know-your-customer (KYC) guidelines, led to a temporary halt on opening new accounts in June 2018.
Although the ban was lifted by December 2018 based on the bank's compliance submissions, subsequent events unfolded with a series of lapses. In October 2021, the RBI uncovered false information submitted by Paytm payments bank, resulting in a fine of
₹1 crore. The regulatory scrutiny intensified in 2022 when investigations revealed lapses in technology, cybersecurity, and KYC anti-money laundering compliance. The lack of separation between PPBL's servers and physical space from other One 97 group entities prompted supervisory restrictions in March 2022.
Despite these warnings, a system audit in 2022 showed insufficient corrective actions, leading to a penalty of ₹5.39 crore in October 2023 for continued non-compliance with KYC norms. Serious KYC and anti-money laundering violations, digital frauds, and money laundering risks were cited, including major irregularities in KYC, PAN validation failures, and an unusually high number of dormant accounts.
The situation was further aggravated by the co-mingling of financial and non-financial businesses with promoter group companies, violating licensing conditions and raising data privacy concerns. The lack of transparency from the bank's promoters, including false compliance reports, added to regulatory concerns.
In response to these issues, Paytm acknowledged the RBI directive in a press release on January 31, stating that the action stems from an ongoing supervisory engagement. The company expressed its commitment to addressing the concerns raised while urging reliance on official communication from the RBI and Paytm Payments Bank for accurate information.
The future for Paytm and its bank appears uncertain, with industry insiders speculating that the RBI's action could be a precursor to revoking the bank's license. The management's decision to halt new