What action has RBI taken against Paytm Payments Bank?

There are five kind of restrictions placed on Paytm. The payments bank account cannot accept deposits, credit transactions, and/or top ups in customer accounts, prepaid instruments, wallets, FASTags, National Common Mobility Cards after February 29, 2024. Interest, cashbacks, and/or refunds may be credited to these accounts and the accounts will only be available for withdrawal or utilisation. Banking facilities such as bill payments and UPI, where Paytm has reasonable leadership, cannot be done after February 29. Nodal Accounts of One97 Communications and Paytm Payments Services have to be closed by February 29, and settlement of all pipeline transactions and nodal accounts shall be completed by March 15. In effect, the business of Paytm Payments Bank can become dysfunctional in a few weeks and several businesses of One97 Communications dependent on the payment bank, an associate company of the group, face the risk of redundancy.

Can this hurt Paytm’s financials?

Yes. The estimated annual impact on operating profit is ₹300-500 crore. However, the ban also poses reputation risk to the existing contracts that Paytm has with its lending partners. Certain large NBFCs have already trimmed their relationship with Paytm after increased capital allocation for unsecured business. The ban on January 31 may complicate Paytm‘s ability to negotiate favourable terms with the lenders and if it does, it could also impact Paytm’s financial. The March FY24 and June FY25 quarters will reveal the true picture of the recent strictures.

How will the ban impact Paytm wallet users?

Since the wallet and FASTag are properties of the payment bank, it would not be possible to load wallets after February 29, 2024, especially if the wallets maintained balances with Paytm Payments Bank. Therefore, at the back end, Paytm will have to migrate these accounts from its payments bank to a third-party account to ensure that operability of wallets. Same holds true for those using FASTag through the Paytm wallet.

Why are merchants said to be at more risk?

Paytm has issued communication that it’s UPI interface would be up and running till and after February 29, 2024. However, to do so, Paytm will have to change its UPI ID from its payments bank to another bank account. Migrating merchants of Paytm currently linked to the payments bank to a third-party bank could be time-consuming and will involve physical interventions, and the same holds true for migrating the nodal accounts of Paytm maintained with its payments bank. For retail users making a payment through Paytm QR, the disruption could be much less, provided Paytm manages to port out its backend, which currently tagged to its payments bank, to other banks.

Can the ban be reversed soon?

Very unlikely in the near-term. Such restrictions are usually placed after multiple rounds of discussions and consultations with officials of the bank. Imposing such a ban also suggests that these corrective and remedial talks did not yield the desired results. Paytm Payments Bank is considered a serial offender in RBI’s corridors. In 2018, it was barred from onboarding customers and the restrictions were removed a year after corrective actions. However in March 2022, the RBI once again barred the bank from onboarding new customers citing lapses in KYC. The ban is yet to be lifted. A few months ago, Paytm Payments Bank was levied a monetary penalty of ₹5.39 crore, which is the highest penalty paid by any bank to RBI so far. Restrictions placed on January 31, 2024 are far more scathing and signal the end of road for the bank.