THE Reserve Bank of India’s (RBI) clampdown on Paytm Payments Bank (PPB) was the result of persistent non-compliance with regulations, top central bank officials said on Thursday (Feb 8), adding they took action after giving the company ample time to comply.
The RBI last week ordered PPB to stop accepting new deposits in its accounts or digital wallets from March, citing supervisory concerns and non-compliance with rules. PPB’s parent is One 97 Communications, popularly known as Paytm for its digital payments app.
The order led to a 35 per cent decline in Paytm’s stock price, erasing US$2 billion in investor wealth.
“We give sufficient time to every regulated entity… to comply with the regulatory requirements,” RBI governor Shaktikanta Das said at a press conference following the central bank’s monetary policy review.
Deficiencies in compliance are discussed bilaterally and companies are nudged to take corrective action, he said.
“When such constructive engagement does not work or when the regulated entity doesn’t take effective action, we go for imposing supervisory or business restrictions,” Das said.
The RBI is a “responsible regulator” and would not have acted if all regulatory norms were complied with, he added.
The RBI had also found hundreds of thousands of accounts at PPB were created without proper identification, Reuters reported on Saturday. The RBI’s regulatory clampdown could be a precursor to Paytm’s licence being cancelled, a source said on Feb 1.
Paytm has 330 million digital wallet accounts, which many people in India use to transfer funds, pay bills and make retail payments.
PPB is the regulated banking entity that accepts the deposits for the Paytm users to then make transactions on the app. The Patym app’s real-time payment interface falls under the RBI’s regulations and after Feb 29, the central bank has barred the app’s users from depositing any funds in PPB.
The app competes with the likes of Walmart’s PhonePe and Google, and is widely used by small merchants to accept payments.
The RBI’s order has raised concerns about disruptions to such payments.
The central bank will issue clarifications on the PPB order next week, said Das.
“Suitable steps” will be taken to ensure that customer inconvenience, if any, is minimised, RBI deputy governor Swaminathan J said.
He did not specify what steps the central bank plans to take.
Paytm management last week said it would partner with banks other than PPB to keep its digital payment app running.
Other banks will need to conduct their own due diligence before taking on any partnerships with Paytm, Swaminathan said.
“We assure our users and merchant partners that the Paytm app remains fully operational, and our services are unaffected,” a Paytm spokesperson said, adding that the company is accelerating partnerships with banks to offer uninterrupted services.
Paytm shares, which were trading 6.4 per cent higher on the National Stock Exchange ahead of the central bank’s comments, extended their decline to settle 10 per cent lower at 446.65 rupees at the close. REUTERS
