RBI tells Paytm Payments Bank to stop adding new customers

Reserve Bank of India (RBI) on Friday directed Paytm Payments Bank to stop adding new customers with immediate effect, in a setback to the digital financial services firm’s efforts to onboard new customers with immediate effect.

“The RBI has today, in 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," an RBI press release stated.
Based on certain material supervisory concerns observed in the bank, the apex bank has directed Paytm Payments Bank to appoint an information technology audit firm to conduct a comprehensive system audit of its IT system, RBI stated in its press release.
"The bank has also been directed to appoint an IT audit firm to conduct a comprehensive System Audit of its IT system. Onboarding of new customers by Paytm Payments Bank Ltd will be subject to specific permission to be granted by RBI after reviewing report of the IT auditors. This action is based on certain material supervisory concerns observed in the bank," RBI added.
Paytm Payments Bank is likely to approach RBI for a small finance bank (SFB) licence by June. "I think (the application for SFB licence will be moved) sometime around May-June next fiscal year,” a Moneycontrol report had quoted a source familiar with the matter assaying.
Last year, Paytm founder and CEO Vijay Shekhar Sharma said becoming a small finance bank would solve a lot of payment problems. The plan to consider applying for conversion into an SFB was disclosed in the draft red herring prospectus filed by One 97 Communications (Paytm) with SEBI before its initial public offering (IPO) last year.
According to RBI guidelines, existing payment banks with a successful track record of at least five years can apply for conversion into SFB. Paytm Payments Bank got its licence to operate as a payments bank from RBI in 2017.
Paytm Payments Bank was incorporated in August 2016 and formally began its operations in May 2017 from a branch in Noida. In December 2020, the RBI had barred HDFC Bank from launching any new digital products or services and issuing new credit cards till the lender resolved recurring tech issues.