Here’s why RBI stopped Paytm bank from enrolling new customers

Although Paytm got off to a good start with its payments bank initiative, opening of new bank accounts and e-wallets abruptly came to a halt in August this year, thanks to the Reserve Bank of India (RBI).

Now, after months of speculation, the RBI has revealed its reasons for blocking Paytm’s business.

Here’s what the central bank has said.

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Why RBI blocked Paytm’s business

Paytm had received its banking license in August 2015

Paytm had received the license to open a payments bank from the RBI in August 2015. However, the Paytm Payments Bank was launched two years later in November 2017, and the official inauguration had been done by Finance Minister Arun Jaitley.


RBI cited four reasons for blocking Paytm’s business

Responding to an RTI filed by TOI, the RBI said that its move to block Paytm’s business came on account of four reasons.

First, Paytm was found to be violating know-your-customer (KYC) norms, although the exact violation is not known.

The other reasons pertain to the governance of the payments bank and maintenance of a prescribed net worth limit.


The RBI was displeased with PPB’s governance structure

As far as governance is concerned, the RBI was displeased with the close relationship between Paytm founder Vijay Shekhar Sharma’s One97 Communications, and the entity that runs Paytm Payments Bank (PPB).

While payments banks are expected to maintain a distance with promoter group entities, PPB is owned 51% by Sharma, and the rest by One97 Communications and its subsidiaries.


RBI found that PPB was violating certain limits

The RBI was also displeased with PPB failing to maintain the prescribed net worth limit of Rs. 100cr.

Further, PPB was also found violating the end-of-the day Rs. 1 lakh limit per account – RBI mandates that payments banks cannot hold more than Rs. 1 lakh in each account.

When TOI emailed PPB about these revelations by the RBI, no response was received.

Paytm had undergone a leadership change following RBI’s clamp down

After the RBI blocked Paytm’s business in August this year, PPB’s CEO Renu Satti resigned. She was replaced with Satish Kumar Gupta, a former SBI and National Payments Corporation of India (NPCI) executive.

Payments banks

Payments banks in general have not fared well in India

That said, payments banks in general have not fared well in India.

Despite the initial excitement, total deposits in such banks amounted to a meagre Rs. 540cr as of May 2018.

Among the four payments banks in India, the Airtel Payments Bank had Rs. 307cr worth of deposits, PPB had Rs. 194cr, Fino Payments Bank had Rs. 37cr, and India Post Payments Bank had Rs. 1.4cr.

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