RBI’s Action Against Paytm Payments Bank

Context:  

The Reserve Bank of India barred Paytm Payments Bank ltd. from offering all its core services from March 2024.

RBI Put Restrictions On Paytm Payments Bank

• Core services: Paytm Payments Bank has been barred from offering its key services i.e. accepting deposits or top-ups in any customer account, prepaid instruments, wallets, FASTags, National Common Mobility Card  etc  after February 29.

Regulatory Restrictions on Paytm Payments Bank: Reasons

• Audit report: The Comprehensive System Audit report and subsequent compliance validation report of the external auditors revealed “persistent non-compliances and continued material supervisory concerns in the bank”.
• Violating RBI directive: The RBI had earlier  directed PPBL to stop onboarding new customers with immediate effect but the bank circumvented the directive to onboard customers through an offline mode.
• Data security: Lack of requisite information barriers within the group, and data access to China-based entities that were indirect shareholders in the payments bank through their stake in the parent company.
• Violating the Payments Banks Terms:  Paytm Payments Bank had allegedly failed to meet the Rs 100-crore net worth criteria, and had exceeded the Rs 1-lakh deposit limit allowed per account for payments banks at the time.

About Payments Bank

• A payments bank is a bank which  operates on a smaller scale without involving any credit risk.
  •  For Example: Airtel Payment Bank, India Post Payment Bank, Fino, Paytm Payment Bank, NSDL Payment Bank and Jio Payment Bank.
• Origin: Based on the recommendations of the Nachiket Mor Committee 2013
• Registration: It is registered under the The Companies Act 2013
• Governed By:  Banking Regulation Act, 1949; RBI Act, 1934; Foreign Exchange Management Act, 1999, Payment and Settlement Systems Act, 2007 and the like.
• Objective: To advance financial inclusion by spreading the payment and financial services network  to small business, low-income households, migrant labor workforce in a secured technology-driven environment.
• Function: A Payments Bank can accept demand deposits (up to Rs 1 lakh), offer remittance services, mobile payments/transfers/purchases and other banking services like ATM/debit cards, net banking and third party fund transfers.
• Differentiated Bank: A  Payment Bank cant perform some functions, these are
  • They cannot advance loans or issue credit cards
  • Payment Banks cannot accept Non-Resident Indian (NRI) deposits.
  • It cannot accept Time deposits 
  • The Payment Banks cannot set up subsidiaries to undertake non-banking financial services activities.

News Source: The Indian Express