In a major blow to Paytm, the Reserve Bank of India has directed Paytm Payments Bank to stop onboarding new customers with immediate effect. This direction came in a press release by RBI today. The RBI has also directed Paytm to appoint an IT audit firm to conduct a comprehensive audit of its IT systems.
The Reserve Bank took action against Paytm under section 35A of the Banking Regulation Act, 1949.
Reserve Bank of India stops Paytm Payments Bank from onboarding new customers pic.twitter.com/wOemAsw21a— ANI (@ANI) March 11, 2022
The notice reads, “Reserve Bank of India has today, in the exercise of its powers, inter alia, under section 35A of the Banking Regulation Act, 1949, directed Paytm Payments Bank Ltd to stop, with immediate effect, 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 system.”
“Onboarding of new customers by Paytm Payments Bank Ltd will be subject to specific permission to be granted by RBI after reviewing report of the IT auditors. This action is based on certain material supervisory concerns observed in the bank,” it further added.
Further details about the reason behind the action are awaited.
According to reports, Vijay Shekhar Sharma’s Paytm Payments Bank was expected to seek a small finance bank (SFB) license from the Reserve Bank of India (RBI) by June this year. However, this doesn’t seem to be the reason for the action taken by RBI. Paytm Payments Bank commenced operations on May 23, 2017. Paytm Payments Bank’s metamorphosis into a small lending bank, according to specialists monitoring the company, would allow the company to build a business model that is protracted.
Paytm founder and CEO Vijay Shekhar Sharma began his ambitious quest with the Paytm app in 2010 and was gradually gaining users’ interest, however, demonetization provided a lion’s share of the boost in the success of Paytm’s development, as a massive spike in online payments was observed. Following the demonetization in November 2016, Paytm became a popular cashless payment option for many customers and retailers. Paytm took the opportunity and ramped up to establish itself as a prominent player in the digital transactions ecosystem, branching further into areas such as Payments Bank, UPI, E-Commerce, Movie ticket booking, etc.