According to the guidelines set by the RBI, the total amount of customer balances at the end of the day cannot be more than Rs 2 lakh. The exact number of deposits in Paytm Payments Bank has not been disclosed by either the bank itself or Paytm.
Paytm Payments Bank Ltd (PPBL) is staring at an uncertain future with the Reserve Bank of India’s (RBI) decision to bar fresh deposits and top-ups with effect from February 29, 2024 and One97 Communications – which runs Paytm services — stopping all businesses with PPBL. While the RBI has not hinted at the possibility of cancelling the license given to Paytm for the payments bank, banking sources don’t rule out the cancellation of the license once the February deadline is over.
Sources in the know said the payments bank is likely to witness a decline in deposits and business following the RBI curbs and the regulator has made serious charges against PPBL which could lead to cancellation of the license
When contacted, the RBI did not comment on the PPBL issue.
As per the RBI’s licensing and operative guidelines for payments bank, aggregate customer balance limit for PPBL customer at the end of the day cannot exceed Rs 2 lakh. Neither PPBL or Paytm has disclosed the deposit base of PPBL. A mail sent to One97 Communications Ltd did not elicit any response.
The Comprehensive System Audit report and subsequent compliance validation report of the external auditors revealed persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action, the RBI said last week. “This has happened at a time when several banking veterans were on the board of PPBL. They should have ensured compliance of RBI norms… but KYC issues and data sharing issues remained for the last several years,” sources said.
AK Jain, former executive director of Punjab and Sind Bank, Manju Agarwal, former Deputy managing director of State Bank of India, Shinjini Kumar, former Citibank and Bank of America official, Srinivas Yanamandra, former compliance official with New Development Bank and ICICI Bank, were on the PPBL board.
In October 2023, the RBI had slapped a fine of Rs 5.39 crore on Paytm Payments Bank due to deficiencies in regulatory compliances. Paytm failed to identify beneficial owner in respect of entities onboarded by it for providing payout services, did not monitor payout transactions and carry out risk profiling of entities availing payout services, breached the regulatory ceiling of end-of-the-day balance in certain customer advance accounts, and even delayed reporting a cyber security incident. One97 Communications owns 49 per cent in PPBL and Paytm founder and Chairman Vijay Shekhar Sharma has 51 per cent stake.
As per the RBI directive, customers will not be able to make deposits or add money to your Paytm Payments Bank savings, current account, debit card, NCMC, transit and FASTag after February 29, 2024. However, there is no restriction on withdrawal of money from the existing balance even after February 29, 2024. “The directive does not impact your existing balances in account or wallet and your money is safe with your bank,” PPBL said. On the other hand, parent Paytm said the disruption of business will continue for a few weeks. There are some operational changes, which will take it a week or two to do before we can kick-start the new business back again, it said. And then the existing business is just about making sure that the people who had set up their mandates from PPBL bank account are able to switch to another bank account, which work has already started.
“I think the disruption will be there for a couple of weeks. And to that extent, we will have an EBITDA impact in our lending business. I don’t want to shy from saying that. But we are very hopeful that, let’s say, by early March, we should be back to full normalcy, if not earlier,” Paytm President and COO Bhavesh Gupta said in a conference call.
Paytm denied there was no data that Paytm was taking and getting from Paytm Payments Bank in the past or in the present. “For any moment in time, a customer who is a customer using wallet or UPI handle of Paytm Payments Bank, the data resides with Paytm Payments Bank, and there was absolutely no information which is available. All the models, be for growth for our insurance business or our lending distribution business or any other thing that we used to do on the Paytm app was were built on insights that are available on the Paytm app or data, which regulatorily and legally Paytm is able to consume and have it in the system,” Paytm said.
On the Chinese wall between Paytm and PPBL, Sharma said at the conference call last week, “That’s exactly what we solved in the last two years, and we believe that we not only became arm’s length, we became farm’s length, meaning we’d rather have a much stronger gap of no data sharing, no data knowledge, with Paytm Bank actually.” However, Sharma remains the Chairman of both OCL and PPBL, enabling him to attend board meetings.
Gupta said the part of migration has three legs. “One leg is that you should have a partner bank interested to own up even the UPI acquiring and wallet acquiring. We have enough and more partner banks, who are interested in integrating with Paytm. So that is sorted out. The second part is, is the commercial in that transaction, similar, better or lower than what we kept today. I can assure you that the commercial is in the similar range that we get from PPBL in some cases better, in some cases a bit lower, but on an average, in a similar range,” he said.
“Now is the third part. One is that you do account to account migration, which is a bit time consuming and you rightly pointed out that the time is short. Other is to do a one-time migration. We have obviously started discussions with the relevant authorities, both in RBI and NPCI, who are helping us extremely well to see to it that how this migration can happen,” Paytm said.
One97 Communications, in a filing to exchanges on Sunday, denied any involvement in anti-money laundering activities.
“Neither the Company nor its founder and CEO are being investigated by the Enforcement Directorate regarding inter alia money laundering. We have and continue to abide by Indian laws and take regulatory orders with utmost seriousness,” the company said.
Many experts feel that the Paytm issue will have an impact on the valuation of all the fintech players.
“Just as holding companies see Holdco discounts in their valuations, we are going to see fintech discounts for some time. Thanks to Paytm, the trust issues around fintech will need more confidence building by the fintechs. They have now become collateral damage to non-compliance of a large fintech player,” said Srinath Sridharan, who is an author, policy researcher & corporate advisor.
PPBL has 3 crore bank accounts
MUMBAI: Paytm Payment Bank has over 30 crore wallets and 3 crore bank accounts, as per the information on the bank’s website. It has over 10 crore KYC customers, with 4 lakh users added every passing month. The bank is the largest issuer of FASTag with over 80 lakh FASTag units issued.
A payment bank can raise deposit up to Rs two lakh but it can’t issue loans or credit cards.
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