RBI directs Paytm Payments Bank to stop onboarding new customers

The Reserve Bank of India (RBI), in its latest release, directed Paytm’s digital banking arm Paytm Payments Bank to stop the onboarding of new customers on its platform.

Explaining the matter, The RBI said its action is based on “certain material supervisory concerns” observed in the bank. Additionally, The bank has also been directed to appoint an IT audit firm to conduct a comprehensive System Audit of its IT system.

“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.

“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,” the release added.

The announcement comes a few days after Paytm reportedly planned to apply to the Reserve Bank of India (RBI) for a small finance bank (SFB) license by June this year.

Small Finance Bank is a type of segment in banking created by RBI with an objective of furthering financial inclusion by primarily undertaking basic banking activities to un-served and underserved sections including small business units, small and marginal farmers, micro and small industries, and unorganized entities.

Earlier in December 2021, Vijay Shekhar Sharma-led Paytm Payments Bank had received the RBI nod to operate as a “scheduled payments bank” in December, which helped it expand its financial services operations.

In the fourth quarter of 2021, Paytm Payments Bank had registered a total of 2,507.47 million beneficiary transactions, compared to 964.95 million in the same quarter in 2020. 

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