The Reserve Bank of India (RBI) clarified that the regulatory action taken pertains to Paytm Payments Bank and not the Paytm app.
The directive from the Reserve Bank of India (RBI), issued last month, specifically applies to Paytm Payments Bank and not the Paytm app, clarified the banking regulator in a press conference held on Thursday. The clarification came after the RBI announced the status quo on policy rates following a meeting of its monetary policy committee (MPC).
Last month, the banking regulator imposed restrictions on Paytm Payments Bank, prohibiting various operations such as deposit-taking and fund transfers, effective from March 1. The decision was made due to multiple instances of non-compliance and ongoing supervisory concerns.
The Reserve Bank of India clarified that its directive last month, which imposed restrictions on Paytm Payments Bank, specifically pertains to the bank’s operations and not the Paytm app. The RBI stated that it will release a list of frequently asked questions (FAQs) next week to provide further clarification. The regulatory action is focused on the payments bank and does not affect the Paytm app.
Governor Shaktikanta Das announced that the Reserve Bank of India will release a Frequently Asked Questions (FAQ) document next week to address the numerous queries raised in the public domain. The clarification aims to provide detailed information regarding the recent regulatory actions, particularly concerning Paytm Payments Bank.
Governor Shaktikanta Das emphasized that the Reserve Bank of India (RBI) has consistently prioritized bilateral engagements with regulated entities, aiming to encourage corrective actions. Sufficient time is provided for entities to address concerns through constructive engagement. If, however, such efforts prove ineffective, or if a regulated entity fails to take appropriate action, the RBI resorts to supervisory or regulatory restrictions. Das clarified that the imposed restrictions are always proportionate to the severity of the situation.
Swaminathan J., Deputy Governor of the Reserve Bank of India (RBI), highlighted that when the RBI identifies irregularities at a regulated entity, it allows sufficient time for corrective actions. The recent supervisory action against Paytm Payments Bank is a result of persistent non-compliance and is preceded by extensive bilateral engagement, where deficiencies are pointed out, and ample time is provided for corrective measures. The primary focus is to protect the interests of consumers and maintain the stability of the financial system.
In response to the clarification from the regulator, a spokesperson for Paytm reassured users and merchant partners that the Paytm app remains fully operational, and its services remain unaffected.
Subsequent to the RBI imposing restrictions on Paytm Payments Bank, one of its independent directors resigned from the board on February 1, 2024.
Prior to this, Agarwal held a directorship position on the board of Jio Payments Bank.
In March 2022, the RBI directed Paytm Payments Bank to halt onboarding new customers due to violations of know your customer (KYC) norms and mandated the appointment of an audit firm.
Paytm hits lower circuit, again
The shares of One97 Communications, the parent company of Paytm, experienced a lower circuit on Thursday, closing at Rs 447.10 apiece on the BSE. In the previous session, the stock had risen by 10 percent, hitting the upper trading limit.
Market experts anticipate a potential rebound for Paytm stock, although they acknowledge that the recovery may be challenging. There is a perception that it will be tough for Paytm to reach its previous position, given increasing competition and potential merchant shifts away from the Paytm platform. The uncertainty surrounding the payments bank and concerns about corporate governance might impact its standing as an investment-grade stock.
The RBI’s crackdown on the Vijay Shekhar Sharma-led firm was prompted by large-scale KYC violations raising money-laundering concerns. Last week, sources revealed additional concerns, including failure to maintain an arm’s length with the promoter group (One97 Communications), nondisclosure of payments to promoters, false compliance submissions, and an overall disregard for compliance and transparency.
On Sunday, the Paytm parent company 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
In the aftermath of the RBI’s action, attention has shifted to the board of Paytm Payments Bank, with concerns about regulatory compliance taking center stage. An expert emphasized that independent directors should play a crucial role in preventing any further lapses in processes to avoid leaving customers in a vulnerable position.
The expert added that the board’s responsibility includes ensuring that the management provides sufficient and accurate information, shared responsibly with regulators. Independent directors are tasked with overseeing strategy and ensuring the effective implementation of the governance framework and associated processes. Their role involves evaluating how the framework is being executed.