“The affairs of the bank were conducted in a manner detrimental to the interest of the bank and its depositors. Thus, the bank is not complying with Section 22 (3) (b) of the BR Act. The general character of the management of the bank is prejudicial to the interest of depositors as also the public interest. Thus, the bank is not complying with provisions of Section 22 (3) (c) of the BR Act,” the RBI said in a press release.
The cancelling of bank licence will not affect the depositors as most of the deposits were already withdrawn since the RBI barred the bank from accepting more deposits from February 29 2024, owing to “persistent non-compliances”. The payments bank is a separate entity from its parent (OCL) and is owned 51% by founder Vijay Shekhar Sharma and 49% by OCL.
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The Section 22 (3) (b) of the banking regulation act says that that the RBI has to be satisfied that the affairs of the company are being, or not likely to be, conducted in a manner detrimental to the interests of its present or future depositors. While 22 (3) (c) that the general character of the proposed management of the bank should not be prejudicial to the public interest or the interest of its depositors.
However, Paytm Payments Bank has enough liquidity to repay its entire deposit liability upon winding up of the bank, the RBI said. “The bank failed to comply with the conditions stipulated in the Payments Bank license issued to it, thereby violating the provisions of Section 22 (3)(g) of the BR Act,” the RBI said. The section 22 (3) (g) also deals with ensuring that in the opinion of the RBI that the carrying on of banking business in India by the company will not be prejudicial to the public interest or the interests of the depositors.
The bank has had run-ins with the regulator previously. On March 11, 2022, the RBI barred the bank from onboarding new customers with immediate effect.
“The bank has also been directed to appoint an IT audit firm to conduct a comprehensive system audit of it IT system. Onboarding of new customers by Paytm Payments Bank Ltd will be subject to specific permission to be granted by RBI after reviewing the report of the IT auditors. This action is based on certain material supervisory concerns observed in the bank,” the RBI said in a notification on March 11, 2022.
Thereafter, on January 31, 2024 and February 16, 2024, certain business restrictions were also imposed on the bank which, inter alia, disallowed any further deposits/credits/ top-ups in existing customer accounts, prepaid instruments, wallets, etc.
Paytm has offline merchant payment network offerings like Paytm QR, Paytm Soundbox, and Paytm Card Machine. Within financial services the company is also involved in loan distribution, insurance distribution and equity broking, are not in any way related to the bank.
Shares of the parent ended 1% lower on the BSE on Friday to end at Rs 1147 a piece. The RBI actions came after market hours.
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