Regulatory Measures Leading to the Restriction of Paytm Payments Bank

The Reserve Bank of India (RBI) prohibited Paytm Payments Bank from providing nearly all of its services due to non-compliance and material supervisory concerns. These issues were raised in the external auditors’ report.

Although the precise non-compliance issues were not specified, Paytm has encountered several regulatory obstacles since its establishment.

What restrictions were imposed on Paytm Payments Bank?

The restrictions imposed on Paytm Payment Bank included

• ·      Suspension of deposits
• ·      Credit transactions
• ·      Fund transfers
• ·      Top-ups

However, some of the other services like prepaid instruments, wallets, FASTags, and National Common Mobility Cards also experienced a halt in operations.

What are the regulatory issues that led to the restriction of Paytm Bank’s services?

• ·      Non-Compliance: The RBI cited ‘persistent non-compliance’ as a major issue with Paytm Payments Bank. The term ‘persistent non-compliance’ refers to a continuous failure of banks to adhere to regulatory guidelines set by the RBI. In the case of Paytm, this term meant that the company repeatedly failed to meet the standards and rules set by the RBI despite being given several opportunities to rectify these issues.
• ·      KYC Violations: RBI found that Paytm has violated several rules including those related to Know Your Customer (KYC) documents which are considered as a basic necessity for any financial services firm. Know Your Customer (KYC) is a process that banks and other financial institutions use to verify the identity of their customers. It is a process that is adopted to prevent fraud, money laundering, and other illegal activities.

Apart from these other Regulatory Issues include a range of violations such as:

• ·      Failure to Identify Beneficial Owner: Paytm was unable to identify the beneficial owner of entities it onboarded to provide payout services. While it is a crucial step in preventing illegal activities such as money laundering.
• ·      Not Monitoring Payout Transactions: Paytm lagged in monitoring payout transactions adequately. Proper monitoring of transactions is important to ensure that transactions are legitimate and do not involve any fraudulent activities.
• ·      Breaching Regulatory Ceiling: Paytm breached the regulatory ceiling of end-of-the-day balance in certain customer advance accounts. It means that the balance in these accounts exceeded the limit set by RBI.

The RBI’s action against Paytm underlines the importance of regulatory compliance for finance service firms. Non-compliance can lead to severe consequences, including financial penalties, restrictions on business activities, and damage to the company’s reputation.