The Reserve Bank of India (RBI) stated, “The bank is not complying with provisions of Section 22 (3) (c) of the BR Act.” This declaration highlights the severe compliance failures that led to the cancellation of Paytm Payments Bank’s banking licence.
Effective immediately, the RBI has prohibited Paytm Payments Bank from conducting any business. The central bank confirmed that the bank possesses sufficient liquidity to repay its entire deposit liability upon winding up operations. However, this does not mitigate the gravity of the situation.
Since 2018, Paytm Payments Bank has faced regulatory scrutiny due to multiple compliance concerns. The RBI had already barred the bank from accepting deposits or top-ups in customer accounts after February 29, 2024. Additionally, it imposed a penalty of Rs 5.39 crore on the bank in October 2023 for violations related to financial compliance.
The RBI cited violations related to know-your-customer (KYC) norms as a key issue. It also stated that the management was found to be prejudicial to the interests of depositors and public interest. As a result, no useful purpose would be served by allowing the bank to continue operating.
Vijay Shekhar Sharma holds a 51% stake in Paytm Payments Bank, while One97 Communications owns the remaining 49%. The affairs of the bank were conducted in a manner detrimental to both its interests and those of its depositors.
The RBI will apply to the High Court for winding up Paytm Payments Bank. This follows orders issued in March 2022 and additional restrictions imposed earlier this year. The timeline for further developments remains unclear as officials have not confirmed specific next steps.
As Paytm Payments Bank navigates this crisis, it raises questions about future regulatory actions against other financial institutions facing similar compliance challenges.
