Paytm's bank shuts down tomorrow: What services will be impacted
Paytm Payments Bank Ltd (PPBL), the banking arm of Paytm, will halt its services from tomorrow (March 15). This is due to a Reserve Bank of India (RBI) order based on voilations of KYC norms and persistent non-compliances by PPBL. Customers can still withdraw or transfer money from their accounts but won't be able to deposit funds anymore. The closure also affects Paytm FASTag users who are advised to obtain a new one.
Impact on services following bank's closure
The bank accounts of Paytm bank will no longer receive salary credits, direct benefit transfers, or subsidies. However, refunds, cashbacks, and sweep-ins funds from partner banks can still be received. Users won't be able to utilise features like top-up or money transfer in their account wallets but can make payments if there is a pending balance in their accounts. Also, the pending balance can be used to pay for OTT subscriptions.
Paytm to obtain a third-party app license
The National Payments Corporation of India (NPCI) is expected to grant a third-party application provider (TPAP) license to Paytm's parent company One 97 Communications. Approval is anticipated before the bank's closure on March 15. The license will enable customers to continue using the Paytm app for payments through UPI, even after its banking arm terminates operations.
Non-compliance issues led to bank's closure
The RBI's decision to close Paytm Payments Bank was due to non-compliance issues. The bank and its parent company were scrutinized for lack of information barriers within the group and data access by China-based entities indirectly holding stakes in the bank. Additionally, the bank reportedly opened multiple accounts without proper identification and allowed deposits amounting to crores. This raised serious concerns about potential illegal activities including money laundering.
RBI's crackdown on Paytm Payments Bank
Paytm Payments Bank has been under RBI scrutiny since 2018. It was temporarily stopped from opening new accounts in June 2018 due to licensing requirement violations. In 2021, the bank was fined Rs. 1 crore for providing false information and KYC AML (anti-money laundering) violations were noticed. By October 2023, due to longstanding disregard for KYC regulations, RBI had fined the company Rs. 5.49 crore, marking its fourth penalty. Following repeated violations, the bank was ordered to cease operations.
