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The RBI has prohibited Paytm Payments Bank from accepting new clients.

The bank has also been ordered by the regulator to hire an information technology (IT) audit company to perform a complete system audit of its IT system.
The Reserve Bank of India (RBI) stopped Paytm Payments Bank from accepting new clients on Friday, citing “serious supervisory concerns” at the bank. The bank has also been ordered by the regulator to hire an information technology (IT) audit company to perform a complete system audit of its IT system.
“Paytm Payments Bank Ltd’s on boarding of new clients would be subject to particular approval to be given by RBI after reading the report of the IT auditors,” the central bank stated.
According to the bank’s parent company, One97 Communications, in its red herring prospectus (RHP), Paytm Payments Bank provides a digital wallet service that lets clients to make payments at about 88,000 online merchant clients and 21.8 million registered in-store merchants clients as of June 30, 2021. As of the same day, the bank had established over 155 million Paytm UPI handles. The total fixed deposits managed in collaboration with commercial banks amounted to ‘2,020 crore. As of June 30, 2021, the bank had 65 million bank accounts.
The RBI acted in accordance with Section 35A of the Banking Regulation Act of 1949. Section 35A empowers the RBI to make directives to prohibit any banking company’s business from being managed in a way damaging to the interests of depositors or adverse to its own interests.
This is not the first time Paytm Payments Bank has incurred the wrath of the authorities. In October 2021, the RBI fined the bank Rs 1 crore for submitting false information while seeking for its final certificate of authorization (CoA). One97 Communications clarified in its RHP that, while Paytm Payments Bank confirmed the completion of the transfer of the Bharat Bill Payment Operating Unit (BBPOU) business from One97 Communications to the bank on August 28, 2017, the RBI observed that the actual transfer of the business would not be completed until March 31, 2021.
In June 19, 2018, the RBI barred Paytm Fund from creating any new accounts or wallets due to regulatory concerns, which were removed on December 31, 2018. In a second case, the banking ombudsman’s office issued a show-cause notice on March 6, 2019, stating that Paytm Payments Bank was unable to monitor a specific account that had showed a dramatic spike in the velocity of daily transactions including instant transfer to other banks. The RBI determined that the activity violated terms of its know your customer (KYC) regulations.

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