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RBI directs Paytm Payments Bank to stop onboarding new customers

The Reserve Bank of India (RBI) on March 11 directed Paytm Payments Bank to stop the onboarding of new customers. The bank has also been directed to appoint an IT audit firm to conduct a comprehensive system audit of its IT systems, RBI said in a release.

“Onboarding of new customers by Paytm Payments Bank Ltd will be subject to specific permission to be granted by RBI after reviewing the report of the IT auditors. This action is based on certain material supervisory concerns observed in the bank,” the RBI said.

In December 2020, the RBI had barred HDFC Bank from launching any new digital products or services and issuing new credit cards till the lender resolved recurring tech issues.

Paytm Payments Bank

Payments Bank is an Indian new model of banks. These banks can accept restricted deposits, which are currently limited to Rs 2,00,000 per customer. These banks cannot issue loans and credit cards. Such banks can operate both current accounts and savings accounts. Payment banks can issue ATM cards or debit cards and provide online or mobile banking.

According to the Paytm Payments Bank website, the company has 100 million KYC customers and is adding 0.4 million users every month. “We are also the largest issuer of FASTag with over 8 million FASTag units,” the website says.

Small Finance Bank Licence

This is a major setback for Paytm’s plan to convert itself into a Small Finance Bank (SFB). Paytm was looking to apply for the small finance bank license in August this year. In the past, Paytm has held several rounds of discussions with the central bank on SFB licenses.

As per norms, payment banks are not permitted to lend; their primary activity is remittances and utility payments. These businesses can also open bank accounts and sell third-party products to their customers, such as insurance, mutual funds, and bank loans.

What the RBI directive said

In its directive, the RBI said the action was based on ‘certain material supervisory concerns observed in the bank’. It is not immediately clear what the exact reasons are inviting the RBI’s action.

The bank has also been directed to appoint an IT audit firm to conduct a comprehensive system audit of its IT systems, RBI said in a release.

“Onboarding of new customers by Paytm Payments Bank Ltd will be subject to specific permission to be granted by RBI after reviewing the report of the IT auditors. This action is based on certain material supervisory concerns observed in the bank,” the RBI said.

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