Paytm Payments Bank faces uncertain future as RBI denies concessions
What's the story
There seems to be no respite for Paytm Payments Bank Limited (PPBL) as the Reserve Bank of India (RBI) has denied any concessions, including transferring accounts to other banks or extending the deadline past February 29, 2024.
According to Moneycontrol, RBI officials told Paytm founder Vijay Shekhar Sharma that PPBL must communicate with banks and the National Payments Corporation of India (NPCI) independently, without any help from the central bank.
License cancellation
RBI may cancel PPBL's license
The RBI is reportedly contemplating revoking PPBL's license if the business isn't closed and transactions are not settled by March 15 deadline.
The banking regulator views license cancellation as a reasonable step after repeated regulatory non-compliance resulted in significant business restrictions on PPBL, effectively shutting all its services by February 29.
Also, RBI reportedly refused to meet Sharma in near future for further discussions.
A final decision on license cancellation will be made soon.
Futile meeting
Sharma's meeting with Finance Minister yields no relief
Yesterday, Paytm founder Sharma also met with Finance Minister Nirmala Sitharaman but received no support.
Sitharaman reportedly informed Sharma that the RBI has been investigating for 1.5 years and has patiently waited before taking action, and they cannot interfere in the matter.
The finance secretary was also present during the brief 10-minute meeting.
Immediate challenge
Paytm faces challenges in migrating accounts, UPI handles
Paytm now faces the massive challenge of transferring around 60 lakh PPBL accounts to third-party banks before February 29 to ensure seamless UPI payments.
However, due to compliance issues raised by the central bank, not many banks are eager to onboard PPBL customers.
Moreover, migrating @paytm UPI handles to a payment service provider (PSP) banks like @apl, @ybl, @okicici, or @oksbi would take at least three months.
Brand image suffers
Impact on Paytm's brand image and credibility
This crisis is expected to damage Paytm's reputation and credibility.
A senior banker involved in talks with Paytm told Moneycontrol that most merchants and consumers likely use two UPI apps, and instead of switching bank accounts within the Paytm app, they would prefer to move to another app like Google Pay or PhonePe.
Paytm's sales team will have to persuade customers and merchants to minimize the loss and weather this storm.
RBI's order
PPBL did not comply with KYC norms
PPBL was found not complying with the rules set by the RBI. The central bank noted that PPBL was faltering in KYC records.
It was found that the same permanent account number (PAN) was linked to more than hundreds of accounts and such accounts reported transactions in crores, breaching RBI's tolerance limit for prepaid instruments.
This also raised money laundering concerns.
There were disproportionately high dormant accounts as well, which can be used as mule accounts.