India’s central bank weighs revoking Paytm’s payments bank licence

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The Reserve Bank of India is discussing more penalties on Paytm Payments Bank and may reach a decision within days, two sources familiar with the matter told TechCrunch.

The central bank has internally discussed revoking the payments bank licence of Paytm, the sources said, requesting anonymity as they are not authorized to speak to the press. RBI didn’t respond to a request for comment early Thursday.

The discussion follows the central bank summoning two Paytm officials to its office in recent weeks over compliance progress, one of the sources said.

In one of its strongest worded letters, the RBI on Wednesday ordered new curbs on Paytm Payments Bank, virtually ensuring that the Payments Bank no longer operates in less than six weeks.

Paytm said on Thursday that it will stop working with Paytm Payments Bank and explore tie-ups with other banks for many of its financial services.

A payments bank license allows the holder to offer basic banking services such as accepting customer deposits of up to $2,400.

Shares of Paytm fell 20% within minutes of marketing opening Thursday, hitting the lower circuit, which temporarily halts trading.

In 2022, RBI slapped Paytm Payments Bank with penalties after finding that the Noida-headquartered firm had violated rules by allowing data to flow to servers outside of India and didn’t properly verify its customers. RBI said Wednesday a comprehensive audit by external auditors found “persistent” noncompliances and “continued material supervisory concerns” in the bank. The noncompliance, RBI said, warranted “further supervisory action.”

Macquarie analysts, known for the best calls on Paytm, said: “We have seen RBI take ~15 months time to revoke its ban on digital business activities of the largest private sector bank. However, in this case since the first ban (in March 2022) for onboarding new customers (~22 months have lapsed), RBI has conducted a comprehensive IT audit and continued to identify non-compliance, which in our view indicates that these lapses are quite material.”

One97 Communications, the parent firm of Paytm, owns a 49% stake in Payment Payments Bank whereas rest equity is owned by Paytm founder Vijay Shekhar Sharma. The RBI gave final approval of payments bank to Paytm in early 2017.

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