The Reserve Bank of India (RBI) on Friday cancelled the banking licence of Paytm Payments Bank (PPBL) with immediate effect, prohibiting it from conducting any banking business and initiating the process of winding up the entity. The bank had already been reduced to a runoff institution following earlier restrictions.
Winding Up Process Initiated
RBI stated that it will apply for the winding up of the bank before the High Court. It noted that the bank has sufficient liquidity to repay its entire deposit liability upon winding up. PPBL has been encouraging depositors to withdraw funds after restrictions imposed two years ago left the bank defunct.
Impact on One97 Communications
While the winding down does not materially impact One97 Communications, the parent company owning the Paytm brand, RBI has invoked various sections empowering it to close banks if it holds an adverse view of the bank's operations. This could intensify regulatory scrutiny on the parent and any new or existing licences held by group entities, potentially acting as a red flag for future RBI licences, especially given the statements justifying the licence cancellation.
RBI's Justification
RBI stated that "the affairs of the bank were conducted in a manner detrimental to the interest of the bank and its depositors," and that "the general character of the management of the bank is prejudicial to the interest of depositors as also the public interest." It added that "no useful purpose or public interest would be served by allowing the bank to continue," and that the bank failed to comply with licence conditions.
Previous Restrictions
RBI had directed the bank to stop onboarding new customers from March 11, 2022. Later, on January 31, 2024, and February 16, 2024, it imposed restrictions disallowing further deposits, credits, or top-ups in customer accounts, prepaid instruments, and wallets.
Current Status of Services
UPI services are now extended as a third-party provider using handles of banks such as Axis Bank, Yes Bank, and State Bank of India, allowing users to continue transactions through the app. Merchant acquiring, including QR-based payments, continues through partner banks, with settlement accounts migrated away from the bank. The wallet business, tied to the bank, has seen restrictions on fresh loading after earlier curbs and will wind down. Debit cards issued by the bank are expected to become inactive over time.
