RBI Is Said To Consider Canceling Paytm Bank Permit

(Bloomberg) -- India’s banking regulator is considering scrapping the license of Paytm Payments Bank Ltd. as early as next month, people with knowledge of the matter said, potentially dealing another blow to the troubled local fintech giant Paytm’s growth ambitions.

The Reserve Bank of India wants to safeguard depositors first and could act after a Feb. 29 deadline when Paytm Payments Bank is required to stop customers from replenishing their savings accounts or the popular digital payment wallet, the people said. 

The proposed move is in response to violations including misuse of customer documentation rules and non-disclosure of material transactions, the people added, asking not to be identified as the details are private. No final decision has been reached and the RBI’s thinking could change based on Paytm’s representation, the people said.  

The RBI didn’t respond to an email seeking comment. A Paytm Bank representative said the recent direction from the central bank is “part of the ongoing supervisory engagement and compliance process” and added that the bank has complied with the regulator’s instructions.

SoftBank Group Corp.-backed Paytm has been in the cross-hairs of the regulator for some time, with multiple warnings over the past two years about questionable dealings between its popular payments app and its lesser-known banking arm, Bloomberg News had reported earlier. This week, the RBI stunned the finance and tech industries by abruptly suspending much of the payments bank’s business, but a license cancellation would be seen as a more severe move.

Hundreds of thousands of Paytm Payments Bank customers hadn’t submitted know-your-customer documentation, the people said, adding that in some cases, a single identity document was used to register thousands of customers. Transactions running into tens of millions of rupees — far beyond regulatory limits — were being done in minimum-KYC accounts, which raised money-laundering concerns, according to the people. 

Paytm Payments Bank operates as a restricted bank that can take deposits but cannot lend. Billionaire Vijay Shekhar Sharma owns 51% stake of the bank and Paytm parent One 97 Communications Ltd. holds the rest.

Based on the outskirts of New Delhi, Paytm competes with financial services offered by Amazon.com Inc., Google and Walmart Inc. Tycoon billionaire Mukesh Ambani’s Jio Financial Services Ltd. has also entered the space, threatening to shake up the fledgling sector. 

Paytm went public with much fanfare in late 2021 but its stock has since slumped more than 70% as investors questioned its profit-making ability and it tussled with regulators. The shares plunged by their daily limit of 20% each on Thursday and Friday, erasing $2 billion of its market value, after the earlier order from the RBI.

(Updates with background.)

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.