The Reserve Bank of India (RBI) on Wednesday ordered Paytm Payments Bank to stop accepting fresh deposits in its accounts or popular wallets after February 29, 2024.

Paytm Payments Bank, which is part of one of India’s largest payment firms Paytm, was told by the regulator that it will not be able to take fresh deposits, facilitate credit transactions, or offer fund transfers, including Unified Payments Interface (UPI) facility after February 29.

“No further deposits or credit transactions or top ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024, other than any interest, cashbacks, or refunds which may be credited anytime,” Yogesh Dayal, a chief general manager with the central bank, said in a press statement.

Withdrawal or utilisation of balances by its customers from their accounts including savings bank accounts, current accounts, prepaid instruments, FASTags, National Common Mobility Cards, etc. are to be permitted without any restrictions, up to their available balance, the statement added.

Why RBI Has Put Restrictions On Paytm Payments Bank?

The RBI said it had in March 2022 asked the Paytm Payments Bank to stop adding new customers.

However, a Comprehensive System Audit report and subsequent compliance validation report of the external auditors revealed persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action, the RBI said, without disclosing details.

The action against Paytm Payments Bank was taken under Section 35A of the Banking Regulation Act, 1949, the central bank added.

What Paytm Payments Bank Said On RBI Restrictions

Paytm Payments Bank, an associate of One 97 Communications Limited (OCL), said it is taking “immediate steps” to comply with the RBI’s directions.

OCL, as a payments company, works with various banks (not just Paytm Payments Bank), on various payments products, the fintech company said in a statement on Thursday.

Update: Paytm Payments Bank Limited, an associate of Paytm receives RBI directions. Paytm to expand its existing relationships with leading third-party banks to distribute payments and financial services products.
Read more here: https://t.co/NsPCOxp6VJ pic.twitter.com/fQjozyR11m

— Paytm (@Paytm) January 31, 2024

“We now will accelerate the plans and completely move to other bank partners. Going forward, OCL will be working only with other banks, and not with Paytm Payments Bank Limited. The next phase of OCL’s journey is to continue to expand its payments and financial services business, only in partnerships with other banks,” the statement read.

Paytm Likely To Lose Over Rs 500 Crore Due To RBI Action

Paytm said it expects a “worst case impact” of Rs 300 crore to Rs 500 crore to its annual earnings from RBI’s order barring Paytm Payments Bank from accepting fresh deposits.

However, the company said it expects to “continue on its trajectory” to improve its profitability.

Stock markets opened higher on Thursday, ahead of the interim Union budget leading up to national elections later this year. Sensex was trading at 71,765 points as of 9.15 am IST, suggesting the NSE Nifty 50 opened 20 points higher at 21,746.

Prime Minister Narendra Modi is expected to avoid spending big on new welfare programmes in the budget before the general election and instead focus on infrastructure, while narrowing the budget gap.

While major policy changes and announcements are unlikely, the expansion in the government’s capital expenditure and the extent of fiscal consolidation would be scrutinised closely, ICRA said in a note.

Finance Minister Nirmala Sitharaman will announce the budget for the financial year 2024-25, which starts on April 1, at 11 am.

Shares of fintech firm Paytm tanked 20% after the Reserve Bank of India restricted Paytm Payments Bank from fresh deposits and credit transactions across its services due to supervisory concerns.

The Narendra Modi government is working towards making India a Viksit (Advanced) Bharat by 2047, Union Finance Minister Nirmala Sitharaman said Thursday morning as she read out the 2024 Interim Budget in a special session of Parliament. Ms Sitharaman, presenting her sixth straight account of the country’s finances, also underlined the government’s resolve to work towards an economic and social development model that is “all round, all inclusive, and all pervasive”.

“Our young country has high aspirations, pride in the present, and hope and confidence in its bright future…” the Finance Minister said as she stood up to deliver her speech.

Overall, there are muted expectations from this budget since it comes less than three months before a general election in which Mr Modi’s BJP is expected to win a third consecutive term. However, there is hope among the salaried middle class of a revision in income tax slabs and an overall anticipation the government will do something to boost job creation.