MUMBAI: The Reserve Bank of India (RBI) on Wednesday barred Paytm Payments Bank from accepting fresh deposits and carrying out transactions from February 29 this year, citing “persistent non-compliance” and “material supervisory concerns”.
In March 2022, the regulator barred Paytm Payments Bank from taking in new customers. The company, with One97 Communications as its parent, was asked at that time to appoint an external auditor to check its information technology systems. “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, warranting further supervisory action,” said RBI in its new order.
The regulator has issued the directions under Section 35A of the Banking Regulation Act. The same Act was used while placing a moratorium on YES Bank, followed by a change in the promoter.
The same Act was used for Punjab & Maharashtra Co-operative Bank, which was also placed under moratorium, and later assets were transferred to a newly formed small finance bank.
The Act empowers RBI to prevent affairs of any bank seen as detrimental to the interests of depositors and secure proper management in the bank. It said no further deposits or credit transactions or top-ups will be allowed in customer accounts, prepaid instruments, wallets, FASTags, National Common Mobility Card cards, etc, after February 29, other than any interest, cashback, or refunds that may be credited any time.
The regulator banned the firms from providing other banking services such as transfer of funds, Aadhaar Enabled Payment System, Immediate Payment Service, Bharat Bill Payment Operating Unit, and the UPI facility.
Users can withdraw or completely utilise amounts in their accounts.
“The nodal accounts of One97 Communications and Paytm Payments Services are to be terminated at the earliest, in any case not later than February 29, 2024,” said the RBI.
The regulator also said that settlement of all pipeline transactions and nodal accounts (in respect of all transactions initiated on or before February 29, 2024) should be completed by March 15, 2024, and no further transactions shall be permitted thereafter.
The company is yet to respond to queries sent by Business Standard on the latest regulatory action.
As of December 2023, Paytm Payments Bank is ranked third on the list of all UPI-based applications (apps) in terms of the volume and value of transactions, according to data from the National Payments Corporation of India.
However, users will still have the ability to conduct transactions through the Paytm app and the UPI channel without any restrictions. This is possible as the app is owned by the parent company and not by Paytm Payments Bank.
The top players, namely PhonePe and Google Pay, have recorded 5,642.6 million and 4,375.29 million transactions, respectively, during the same time. In terms of the value of transactions, the companies have processed transactions amounting to Rs 9.01 trillion and Rs 6.29 trillion, respectively.
In December 2023, the company processed 1,573.61 million UPI transactions amounting to Rs 1.91 trillion. Meanwhile, in the payments bank space, the platform tops the charts in terms of the volume and value of transactions.
Similarly, Paytm in its earnings release said it has recorded a 45 per cent year-on-year growth in its revenue from payment services from Rs 1,197 crore in the third quarter (Q3) of 2022-23 (FY23) to Rs 1,730 crore in Q3 of 2023-24 (FY24). On a sequential basis, this revenue rose 13.5 per cent from Rs 1,524 crore in the second quarter (Q2) of FY24.
The company has recorded an 18 per cent increase in its average monthly transacting users (MTU) from 85 million in Q3FY23 to 100 million in Q3FY24. On a sequential basis, its average MTU was up from 9.5 million in Q2FY24.
In August of the previous year, Paytm founder and Chief Executive Officer Vijay Shekhar Sharma entered into an agreement to acquire a 10.3 per cent stake in the financial technology firm from Antfin (Netherlands) Holding BV in a non-cash transaction.
Meanwhile, analysts expect an impact on the share price of One97 Communications, which operates in the name of Paytm.
“It will be a major blow to the Paytm stock because it is struggling to turn the bottom line positive. The recent RBI direction will affect the company as other payments banks are also picking up. Now it will affect the shareholders,” said Chokkalingam G, founder of Equinomics.
Paytm was listed on the exchanges in November 2021.
Chokkalingam added that stocks like Paytm are generally viewed more on the basis of their perception of long-term prospects than the bottom line in the short to medium term.
“That’s what helps these new-age companies shore up market capitalisation. The recent development will have an adverse development on the stock prices even if the regulator’s measure is temporary in nature,” he added.
“The RBI has been taking action against Paytm since 2022. This is the final, big restriction that it has come out with. We don’t think it is a huge impact as restrictions were already in place. Governance and compliance-wise, there could be some impact on the valuation of the stock,” said Deepak Jasani, head of retail research, HDFC Securities.
With inputs from PTI
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