RBI Cancels Banking Licence of Paytm Payments Bank
Context:
More than two years after initially restricting its services, the Reserve Bank of India (RBI) has officially scrapped the banking licence of Paytm Payments Bank Ltd (PPBL) with immediate effect.
The central bank stated that the institution's operations and the general character of its management were "prejudicial to the public interest" and the interests of its depositors.
Regulatory Violations:
PPBL had been under intense regulatory scrutiny since 2018 for persistent and severe violations of Know-Your-Customer (KYC) norms.
Money Laundering Risks:
A primary issue flagged by the RBI was the linking of a single Permanent Account Number (PAN) to multiple customer accounts.
This practice bypassed critical regulatory safeguards and significantly heightened money laundering risks.
The bank was consistently found to be allowing transactions that exceeded the prescribed regulatory limits for certain accounts.
Statutory Breaches:
By failing to comply with crucial conditions meant to protect depositors, PPBL directly violated Section 22(3)(c) and Section 22(3)(g) of the Banking Regulation (BR) Act, 1949.
The Definition of 'Banking':
Following the licence cancellation, PPBL is strictly prohibited from conducting the business of 'banking' or any additional specified business.
The term 'banking' is explicitly defined under Section 5(b) of the Banking Regulation Act, 1949.
Even while fully operational, payments banks are tightly restricted entities in India.
They are only permitted to accept deposits up to ₹2 lakh per customer and are entirely barred from offering loans or issuing credit cards.
Customer Funds and Winding Up:
To formally close the institution—which is jointly owned by Vijay Shekhar Sharma (51%) and One97 Communications (49%)—the RBI will approach the High Court to initiate the winding-up process.
The RBI and PPBL have assured customers that the bank has sufficient liquidity to repay its entire deposit liability.
Customers are permitted to withdraw their available balances from savings accounts, current accounts, wallets, FASTags, and National Common Mobility Cards (NCMC) without restriction.