Will Paytm work after February 29? Here's everything you need to know about the RBI clamp down on Paytm Payments Bank

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The Reserve Bank of India (RBI) has taken stringent measures against Paytm Payments Bank, restricting the entity from offering additional banking services effective March 2024. The move comes in response to persistent non-compliance issues and supervisory concerns identified in external audit reports.

The RBI's Comprehensive System Audit and subsequent compliance validation revealed significant breaches, prompting the central bank to halt Paytm Payments Bank's ability to onboard new customers and implement a comprehensive System Audit in March 2022.

As of February 29, 2024, Paytm Payments Bank will be barred from accepting deposits, conducting credit transactions, or facilitating top-ups in various customer accounts, prepaid instruments, wallets, FASTags, and NCMC (National Common Mobility Cards). However, interest, cashbacks, and refunds may still be credited.

Withdrawals or utilization of balances from savings and current bank accounts, prepaid instruments, FASTags, and NCMC should be permitted without restrictions and up to the available balance. Nevertheless, apart from fund transfers, no other banking services, BBPOU (Bharat BillPay Operating Units), and UPI facility should be provided by the bank post February 29, 2024.

The RBI has mandated the termination of nodal accounts of the parent company, One97 Communications, and Paytm Payments Services by February 29, 2024. Settlement of all pipeline transactions and nodal accounts initiated before this date should be completed by March 15, 2024, after which no further transactions will be allowed.

Impact on Paytm users:

Banking Operations Shutdown: Paytm Payments Bank effectively ceases banking operations unless services are transferred through another bank.

Risks to Earnings and Valuations: Risks include impacts on payments margin, potential limitations on lending business, winding down of wallet GMV (Gross Merchandise Value), and significant effects on FasTag GMV.

Also read: RBI directs Paytm Payments Bank not to onboard new customers after February 29

Paytm's response:

Paytm founder Vijay Shekhar Sharma assured users that the app will continue working beyond February 29 and remains committed to serving in full compliance. However, challenges in earnings and valuations persist due to the regulatory restrictions.

The founder and CEO of One97 Communications Ltd (OCL), which owns Paytm brand, on social media platform X said the company is committed to serving the nation in full compliance. "To every Paytmer, Your favourite app is working, will keep working beyond 29 February as usual," Sharma said.

RBI has barred Paytm Payments Bank Ltd (PPBL) from accepting deposits or top-ups in any customer account, prepaid instruments, wallets, and FASTags, among others after February 29, 2024.

OCL holds a 49 per cent stake in PPBL but classifies it as an associate of the company and not as a subsidiary.

"I with every Paytm team member salute you for your relentless support. For every challenge, there is a solution and we are sincerely committed to serve our nation in full compliance. India will keep winning global accolades in payment innovation and inclusion in financial services - with PaytmKaro as the biggest champion of it," Sharma said.

The Paytm top management during an earning call on Thursday said they are working on a migration plan for PPBL, wallet, FASTag etc users with other banks.

The company sees the RBI order to have an impact of Rs 300-500 crore on its annual operational profit as its customers will not be able to add money to their wallets, FASTag etc.

Separately, the company informed that its offline merchants network offering and device business like Paytm Soundbox, EDC, QR are not impacted by the Reserve Bank of India's (RBI) direction to its associate bank.

The fintech company will also continue onboarding merchants to its platform.

"The Paytm Payment Gateway business (online merchants) will continue to offer payment solutions to its existing merchants. Other financial services such as loan distribution, insurance distribution and equity broking, are also not in any way related to Paytm's associate bank and are expected to be unaffected by this direction," the company said.

Paytm said that the RBI order also does not impact user deposits in their savings accounts, wallets, FASTags and NCMC (National Common Mobility Card) accounts, and they can continue to use the existing balances.

RBI has ordered PPBL to settle all pipeline transactions and nodal accounts (in respect of all transactions initiated on or before February 29, 2024) by March 15, 2024 and no further transactions would be permitted thereafter.

Sharma during the call had said that RBI order is a "big speed bump" and shared that he could not understand the trigger for the move and he was not aware of the exact nuance that triggered the order.

"On behalf of Paytm I can say it is more of a big speed bump but it is something that we believe that with partnership of other banks and capabilities that we have already developed, we will be able to see through in the next few days or quarters as the case will be," he had said. (With additional reporting from PTI)