RBI restricts Paytm Payments Bank from offering FASTag, wallet services from February 29

The Reserve Bank of India (RBI) has imposed significant restrictions on Paytm Payments Bank (PPBL), effective from February 29. This includes a halt on new deposits, top-ups in customer accounts, and the usage of prepaid instruments, wallets, and FASTags.

Concerns Raised by RBI

The central bank’s move reflects concerns about PPBL’s operations, indicating regulatory intervention due to observed issues or non-compliance in the bank’s functioning.

RBI had previously directed PPBL to stop onboarding new customers on March 11, 2022, but persistent non-compliance was identified in subsequent audits.

Prohibitions and Exceptions

Under section 35A of the Banking Regulation Act, 1949, RBI has prohibited PPBL from accepting new deposits, engaging in credit transactions, or facilitating top-ups from February 29, 2024.

Exceptions to this restriction include allowing interest, cashbacks, or refunds to be credited at any time. Customers can withdraw or utilize their balances without restrictions, up to the available balance.

Restricted Banking Services

As of February 29, 2024, PPBL is restricted from offering additional banking services beyond withdrawals and account utilization. This includes discontinuation of services like fund transfers, BBPOU, UPI facilities, etc.

All pipeline transactions and nodal accounts related to transactions initiated on or before February 29, 2024, must be settled by March 15, 2024, as per the RBI’s statement.

These stringent directives aim to ensure compliance and protect customer interests in the digital payment ecosystem, as noted by RBI in its statement.

Commenting on the announcement, Yogesh Dayal, Chief General Manager, RBI, said:

Today, the Reserve Bank of India, leveraging its authority under section 35A of the Banking Regulation Act, 1949, has mandated Paytm Payments Bank Ltd to cease onboarding new customers immediately. Additionally, the bank is instructed to engage an IT audit firm for a thorough System Audit of its IT infrastructure.

The onboarding of new customers by Paytm Payments Bank Ltd will be contingent upon specific permission granted by the RBI following a review of the IT audit report. This regulatory action is prompted by specific supervisory concerns identified within the bank.