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HomeBusinessRegulatory action on Paytm Payments Bank, not app, clarifies RBI

Regulatory action on Paytm Payments Bank, not app, clarifies RBI

The Reserve Bank of India’s (RBI’s) directive issued last month concerns Paytm Payments Bank, not the Paytm app, the banking regulator clarified in a press conference on Thursday. This was after the RBI, after a meeting of its monetary policy committee (MPC), announced the status quo on policy rates earlier in the day.

The banking regulator had last month barred Paytm Payments Bank from conducting most of its operations, including deposit-taking and fund transfers, with effect from March 1, over several instances of non-compliance and continued material supervisory concerns.

The RBI said it would next week come out with a list of frequently asked questions (FAQs) on the Paytm Payments Bank issue. “This particular action is against the payments bank, not the app. We will clarify it through FAQs. The app is not impacted by the action,” said RBI Deputy Governor Swaminathan J.

Governor Shaktikanta Das said the FAQ would address the many questions raised in the public domain. “In the past few days, we have received a lot of queries from various quarters, including members of the public. We have noted these questions and will issue an FAQ sometime next week.”

RBI’s emphasis, Das said, had always been on bilateral engagements with regulated entities with a focus on nudging them for corrective actions. “Sufficient time is given for undertaking such corrective actions. When such constructive engagement does not work, or when a regulated entity does not take effective action, we go for supervisory or regulatory restrictions. The restrictions we impose are always proportionate to the gravity of the situation,” he said.

The regulator provides sufficient time to ensure corrective action when it identifies irregularities at a regulated entity, said Swaminathan J. “This is a supervisory action on a regulated entity for persistent non-compliance. Such supervisory actions are preceded by months — and sometimes years — of bilateral engagement where we not only point out deficiencies but provide more than adequate time to take corrective actions. As a regulator, it is incumbent upon us to protect the interests of the ultimate consumer, and protect the stability of the financial system.”

Commenting on the regulator’s clarification, a spokesperson for Paytm said: “We assure our users and merchant partners that the Paytm app remains fully operational, and our services remain unaffected.”

Meanwhile, one of Paytm Payments Bank’s independent directors, Manju Agarwal, resigned from its board on February 1, 2024 after RBI placed restrictions on the payments bank. 

Previously, Agarwal served as a director on the board of Jio Payments Bank. 

Earlier, in March 2022, the RBI had directed Paytm Payments Bank to stop onboarding new customers — due to know your customer (KYC) violations — and to appoint an audit firm.

Paytm hits lower circuit, again

The shares of One97 Communications, the parent company of Paytm, hit the lower circuit on Thursday to close at Rs 447.10 apiece on the BSE. The stock had risen 10 per cent in the previous session to hit the upper trading limit.

Market experts expect the Paytm stock to see some bounce-back, but say the recovery might be difficult. “It will be difficult for Paytm to be where it was a couple of months ago, since competitors are getting aggressive and merchants might be looking to shift out of the Paytm platform. People have seen banks going down in the past, and they might have their own fears due to uncertainty around the payments bank,” said Ambareesh Baliga, an independent equity analyst. “There may be some bounce-back, but I don’t think it will be considered an investment-grade stock, since whatever has happened points to the issue of corporate governance.”

Large-scale KYC violations, leading to money-laundering concerns, had prompted the RBI to clamp down on the Vijay Shekhar Sharma-led firm, sources had told Business Standard last week. There were other concerns too, such as not maintaining an arm’s length with the promoter group (One97 Communications), not disclosing payments to promoters, false submissions of compliance, and an overall sense of complete disregard for compliance and transparency. 

The Paytm parent had on Sunday denied reports of an Enforcement Directorate (ED) investigation against the company, its associates, and the founder & chief executive.

Paytm Payments Bank board in the spotlight

Following the RBI action, concerns surrounding regulatory compliance have put the board of Paytm Payments Bank in the spotlight. “The independent directors should now ensure there are no further slip-ups in processes. Otherwise the customers will be left high and dry,” said Amit Tandon, founder & managing director of proxy advisory firm Institutional Investor Advisory Services India (IiAS).

Tandon added that the board should ensure the company’s management provided enough and accurate information, and that was shared with the regulators responsibly. “Independent directors are responsible for strategy on one level, and for the governance framework and associated processes on another. They should check how the framework is being implemented.”

First Published: Feb 08 2024 | 9:24 PM IST

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