Starting on February 29, 2024, the RBI will no longer allow Paytm Payments Bank to onboard new subscribers, ruled RBI.
Paytm stocks fell 20 percent after this decision and reached the lower circuit limit in February.
Interestingly, though, SVF India Holdings, a SoftBank company, sold 12,706,807 equity shares of Paytm through open market transactions, bringing its ownership down to 5.01%, just three weeks before the Reserve Bank of India placed limitations on the app.
What caused the Ban?
Paytm Payments Bank (PPBL) has been found to have significant irregularities in KYC, with 31 crore e-wallets being dormant and 4 crore operative with no or small balances. These irregularities have exposed customers, depositors, and wallet holders to serious risks. The RBI detected serious KYC Anti Money Laundering violations in 2021, but the bank continued to persist. In March 2022, the RBI imposed supervisory restrictions on PPBL, requiring it to stop onboarding new customers and appoint an external audit firm for a comprehensive system audit.
Exposed by Audit report
Concerns about money laundering and dubious transactions involving hundreds of crores of rupees between the well-known wallet Paytm and its less well-known banking division prompted the Reserve Bank of India to crack down on companies owned by IT icon Vijay Sekhar Sharma, according to sources.
Additionally, Paytm’s stock, however, has experienced a significant decline, reaching the 20% lower circuit limit for two straight trading days. This decrease occurred after Paytm Payments Bank was prohibited by the Reserve Bank of India (RBI) from carrying out specific activities as a result of an external auditor’s system audit report and subsequent compliance validation report.
With over 330 million wallet accounts hosted by the payment bank, which is essential to Paytm’s ecosystem, this was a major setback for the firm. Analysts predict that the tough limitations would make it more difficult for Paytm to keep users. Following its debut in November 2021, Paytm had one of its most difficult periods until a major sell-off was triggered by the regulatory action. Regarding the stock, investors who bought at the IPO and have held onto their shares up to this point face difficulties because it is currently trading at a 77.34% discount to its issue price of ₹2,150 per share.
FASTags too included
As of February 29th, the Reserve Bank of India (RBI) has issued an order that forbids Paytm Payments Bank Limited (PPBL) from taking deposits or top-ups in any kind of client account, including wallets and FASTags. This action by the central bank indicates a major regulatory involvement in reaction to any problems or non-compliance seen in the bank’s operations, which raises questions about the operations of Paytm Payments Bank.
According to the RBI, on March 11, 2022, PPBL was instructed to cease onboarding new clients immediately. The central bank stated that “persistent non-compliance” and ongoing serious supervisory issues at the bank were discovered by external auditors in a subsequent compliance validation report.
Additionally, The RBI has directed Paytm Payments Bank to stop onboarding new customers and appoint an IT audit firm to conduct a comprehensive System Audit. The bank has also been directed to permit withdrawal or utilization of balances by customers, including from savings and current bank accounts, prepaid instruments, FASTags, and NCMC, without restrictions. The regulator has also urged Paytm to transfer or route its payment services through another bank, as the company is still awaiting final approval for the payments aggregator (PA) license. The new restrictions may result in the bank shutting down its operations, making it difficult for Paytm to undertake other payment-related transactions beyond the payments ba