RBI has ordered Paytm Payments Bank Ltd to immediately stop onboarding new customers.
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The Orders
They can only take on new customers if the RBI grants them specific permission, after reviewing a report by specially appointed IT auditors.
The bank has to appoint an IT audit firm to conduct a thorough system audit of its IT system.
The order has been issued due to “certain material supervisory concerns observed in the bank.”
It hasn’t gone into the specifics but reports say that there are several issues including violation of norms related to Know Your Customer (KYC), data storage, data privacy, and outsourcing of data.
History Of Violations
Paytm Payments Bank was slapped with a Rs 1 crore penalty by RBI In October 2021 due to deficiencies in information filed for regulatory compliance.
To be specific, the bank had submitted false information regarding the transfer of its Bharat Bill Payment Business, which was an offence under the Payment & Settlement Systems Act.
It was also barred from onboarding new customers back in June 2018 due to supervisory concerns.
The restrictions were lifted on December 31, 2018.
RBI’s Concerns
The RBI was able to take the latest action due to its powers under Section 35A of the Banking Regulation Act 1949 to give directions to banks for management of their affairs.
The provision seeks to prevent the affairs of any bank being conducted in a manner that is against the interests of the depositors, or in a manner prejudicial to the bank’s own interests.
In this case, there were concerns about the impact on depositors due to problems with KYC and IT compliance, prompting the RBI to exercise its power.
Impact On Customers
The bank’s existing customer base or the broader Paytm business will not be impacted.
They will be able to do their app-related transactions as usual.
Macquarie Research even said that the ban would not impact Paytm’s brand and customer loyalty.
Impact On Company
However, the ban does spoil plans for business growth for the bank which was looking to grow its customer base to 500 million.
Also affected will be the bank’s chances of getting a small finance bank licence which would allow them to start lending.
They would have been eligible for the licence in May this year, having completed five years of operations.
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