On the evening of January 31, the Reserve Bank of India pronounced a rather unusual death sentence for Paytm Payments Bank. It barred the bank from undertaking any banking activities whatsoever — no deposits, no credit transactions, no wallet top ups, no bill payments, nothing — after February 29. The Reserve Bank of India (RBI) has clarified its recent actions against Paytm Payments Bank, stating that the crackdown was a result of the bank's failure to comply with regulations despite repeated warnings. The decision to restrict Paytm Payments Bank from accepting new deposits was made after giving the company ample time to rectify its non-compliance issues, news agency Reuters reported.

RBI Governor's statement

RBI Governor Shaktikanta Das, speaking at a press conference following a monetary policy review, outlined that regulated entities are given adequate time to meet regulatory requirements. He stated that the RBI engages in constructive discussions with companies regarding compliance issues and encourages them to take corrective measures. However, when such efforts prove ineffective, the RBI resorts to imposing supervisory or business restrictions. Das reiterated that the RBI is a responsible regulator and would not have taken action if all regulatory norms had been followed.

Concerns over unidentified accounts

Additionally, concerns have arisen regarding the creation of hundreds of thousands of accounts at Paytm Payments Bank without proper identification. There are speculations that the regulatory crackdown could potentially lead to the cancellation of Paytm's licence. Paytm, with 330 million digital wallet accounts, is widely used in India for various financial transactions. The central bank's directive barring new deposits into Paytm Payments Bank has raised concerns about disruptions to digital payments. "We assure our users and merchant partners that the Paytm app remains fully operational, and our services are unaffected," a Paytm spokesperson said, adding that the company is accelerating partnerships with banks to offer uninterrupted services.

RBI's assurance on customer convenience

In response to queries about customer inconvenience, RBI Deputy Governor Swaminathan J stated that suitable measures would be taken to minimise any disruptions. However, specific details about these measures were not provided. Paytm management has announced plans to collaborate with other banks to ensure the continued operation of its digital payment app. However, Swaminathan highlighted that partnering banks would need to conduct their own due diligence before entering into any agreements with Paytm. Following the RBI's comments, Paytm's shares experienced a decline, trading 10 per cent lower in the afternoon session, after initially rising by 6 per cent on the National Stock Exchange. The RBI has indicated that it will release further clarifications regarding the Paytm Payments Bank order in the form of frequently asked questions (FAQs) in the coming week.