Paytm, a company launched in 2009, is one of the largest payments platform in India based on the number of consumers, merchants, transactions, also as per the revenue for the financial year ended March 2021. It is a mobile-first digital payments platform to enable cashless payments for customers giving them the power to make payments from their mobile phones. It started with bill payments and mobile top-ups as the first use cases, and Paytm Wallet as the first Paytm Payment Instrument.
Paytm Payments Bank is one of the payment instruments of Paytm. That on 11 th March 2022, the Reserve Bank of India (RBI), directed Paytm Payments Bank Ltd & to stop, with immediate effect, onboarding of new customers.
The notice issued by the RBI, reads as follows:-
“Reserve Bank of India has today, in the exercise of its powers, inter alia, under section 35A of the Banking Regulation Act, 1949, directed Paytm Payments Bank Ltd to stop, with immediate effect, onboarding of new customers. The bank has also been directed to appoint an IT audit firm to conduct a comprehensive System Audit of its IT system.”
The onboarding of new customers by Paytm Payments Bank Ltd will be subject to specific permission, which will be granted by RBI, after reviewing report of the IT auditors. RBI has further stated that this action is based on certain material supervisory concerns observed in the bank.
The directions issued by the RBI will prevent Paytm Payments Banks from onboarding any new customers, however, the same may be allowed subject to RBI granting them the specific permit, after reviewing report by specially appointed IT auditors.
The bank has been directed to appoint an IT audit firm to conduct a comprehensive system audit of its IT system.
This action is based on certain material supervisory concerns observed in the bank, the RBI said in a statement.
FROM WHERE DOES RBI GET THE POWER TO IMPOSE RESTRICTIONS ON PAYTM PAYMENTS BANK?
The RBI took action in exercise of its powers under Section 35A of the Banking Regulation Act, 1949. Section 35A gives RBI the power to issue directions to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to its own interests.
Earlier on June 19, 2018, the RBI had prohibited Paytm Payments Bank from opening any new accounts and wallets on account of supervisory concerns, which were lifted with effect from December 31, 2018. In a separate instance, the office of the banking ombudsman had issued a show-cause notice dated March 6, 2019, noting that Paytm Payments Bank could not monitor a certain account maintained with it which had shown a sudden increase in the velocity in daily transactions involving immediate transfer to other banks. The RBI ruled that the action resulted in the violation of provisions of it’s “Know your customer” (KYC) norms.
ABOUT THE AUTHOR
Ketan is an Associate with Maheshwari & Co. He specializes in E-commerce and startups compliances across PAN India. He has done various transactional and advisory work for startups. He has significant experience in drafting a wide range of legal agreements, contracts, applications, and petitions on various commercial & corporate matters pertaining to E- commerce, Startups, the Negotiable Instruments Act, Civil & family law matters etc.
He has been regularly appearing before various forums and quasi-judicial bodies including National Company Law Tribunal, National Company Law Appellate Tribunal, Debts Recovery Tribunals, District Courts and High Courts. He has also been actively taking care of various secretarial works including drafting of minutes, agendas, notices, filing of forms, maintaining of registers, etc. for various public and private sector companies.