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Indian government shuts down Paytm Payments Bank

The RBI tightened restrictions on Paytm’s Payments Bank, which handles transactions for the financial services behemoth, preventing it from taking new deposits and credit transactions.

Wednesday’s announcement, which takes effect on February 29, follows the Indian central bank’s 2022 cap on Paytm Payments Bank’s new client accounts. A thorough external audit uncovered “persistent” noncompliances and “continued material supervisory concerns” in the bank, RBI said. RBI said the violation required “further supervisory action.”

The RBI’s’sew approach is unknown, but industry officials warned that it may significantly disrupt Paytm’s offline merchant and gateway businesses. Bernstein analysts said RBI’s recent regulation “for all practical purposes… ends the operations of Paytm Payments Bank.” This is a bad development and adds to the business’s hefty regulatory burden.”

Paytm’s parent company, One97 Communications, controls 49% of Payments Bank. A payments bank license permits the licensee to provide certain banking services, with limits.

The RBI ordered One97 Communications and Paytm Payments Services to shut their nodal accounts “at the earliest.” Industry insiders believe Paytm would have to shift many of its activities to other banks without the Nodal account.

“All pipeline transactions and nodal accounts (in respect of transactions initiated on or before February 29, 2024) shall be settled by March 15, 2024, and no further transactions shall be permitted,” the RBI said.

Customers may withdraw and use money from accounts, the RBI stated. The RBI also banned Paytm Payments Bank from offering credit transactions, including via wallets.

Paytm Payments Bank was fined by the RBI in 2022 for allowing data to transit to servers outside India and not adequately verifying its consumers.

Eltrys Team
Author: Eltrys Team

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