Daily News Analysis » February 2024 » RBI Action Against Paytm Payments Bank: 1 Feb, 2024

RBI Action Against Paytm Payments Bank: 1 Feb, 2024

Payment Banks 

Definition: Payment banks operate on a smaller scale compared to traditional banks, focusing on basic banking services without the risk of credit.

Services Offered:

  • Accept demand deposits (savings and current accounts) up to Rs 100,000 per customer.
  • Issue ATM/debit cards, but not credit cards.
  • Offer payments and remittance services.
  • Distribute non-risk financial products like mutual funds and insurance.
  • Invest customer deposits in government securities only.

Restrictions:

  • Cannot issue loans or credit cards.
  • No subsidiaries for non-banking financial activities.
  • Cannot accept NRI deposits.
  • Investment is limited to government securities and certain bank deposits.

Promotion and Regulation:

  • Recommended by Dr. Nachiket Mor’s committee for serving lower-income groups and small businesses.
  • Eligible promoters include existing PPI issuers, NBFCs, mobile companies, supermarket chains, and more, primarily resident-owned.
  • Can be a joint venture with scheduled commercial banks.
  • Governed by the Companies Act, 2013, Banking Regulation Act, 1949, and other relevant laws.
  • Must maintain a Cash Reserve Ratio (CRR) and invest in SLR-eligible securities.

Financial Requirements:

  • Minimum paid-up capital: Rs 100 crore.
  • Promoter’s minimum initial contribution: 40% for the first five years.
  • Foreign shareholding as per FDI policy for private sector banks.

 

Key Points of Recent RBI Action against Paytm Payment Bank: 

  • RBI’s Directive: 
    • Service Restrictions: Includes fund transfers, UPI facility, and termination of nodal accounts of One97 Communications and Paytm Payments Services by Feb 29, 2024
    • Customer Withdrawals: Customers can use or withdraw their stored balances in Paytm accounts up to their available balance.
  • Possible Causes for RBI Action: 
    • Concerns over KYC compliance, IT issues, and data access to China-based entities. Previous scrutiny since 2018 for regulatory compliance issues.
    • Paytm’s Chinese investments, particularly from Antfin (Alibaba affiliate), are under intense regulatory scrutiny.
  • Compliance Issues: Concerns over user acquisition processes, KYC norms, and maintaining arm’s length distance from promoter group entities.
  • Financial Criteria Concerns: Allegations of not meeting the Rs 100-crore net worth criteria and exceeding the Rs 1-lakh deposit limit per account for payments banks.

 

Why in News:

  • Paytm Payments Bank barred from key services like accepting new deposits, offering prepaid instruments, wallets, FASTags, etc., effective after February 29, 2024.