Due to ongoing non-compliance and supervisory concerns, the RBI directs Paytm Payments Bank to stop accepting deposits and credit transactions after February 29, 2024. Deposits, credit transactions, and top-ups are restricted for customers, and some services-like fund transfers and UPI facilities-will be phased down. This is due to previous orders from March 2022, which stopped onboarding new customers. It results from continued supervisory concerns and repeated non-compliance within the bank, generating worries about its potential effects on its clientele.

Impact on Customers due to this Meltdown after February 29, 2024

Customers of Paytm Payments Bank will see limitations on several important transactions as of the designated date. In customer accounts, prepaid cards, wallets, FASTags, and National Common Mobility Cards, no more credit transactions, deposits, or top-ups will be accepted.

Consumers can still take money out of their accounts, however, some services won't be offered anymore, such as UPI facilities and fund transfers.

The intervention by the RBI is directed towards Paytm Payments Bank, which is a subsidiary of One 97 Communications, a publicly traded company. The bank, which owns a 49% share in Paytm Payments Bank, has been determined to violate regulatory requirements and presents serious supervisory issues.

The directive from the central bank includes stopping all deposits and top-ups in wallets, prepaid cards, customer accounts, FASTags, and more.

Aftermath on UPI Channel Usages and PayTM App 

There are no limitations on how users can use the UPI channel and the PayTM app. It's important to understand that the parent firm, not PayTM Payments Bank, is the owner of the PayTM app.

Accounts Connected to PayTM Payments Bank

• The Remitter's Account

With no limits, remitters can easily utilize the app to withdraw or transfer money from their PayTM Payments Bank account or wallet.

• Account of the Beneficiary

Credits are available to beneficiaries associated with PayTM Payments Bank till February 29, 2024. Withdrawals and money transfers from their wallet or account are permitted after this date. However, starting on March 1, 2024, no top-ups or credits will be accepted into PayTM Payments Bank accounts or wallets.

RBI's Effective Date of Action Commencement

The RBI's decision, which forbids any top-ups or credits to PayTM Payments Bank accounts or wallets, will take effect on March 1, 2024.

• Continuous Business Limitation

The business prohibition that was put in place on March 11, 2022, prohibiting PayTM Payments Bank from accepting new clients, is still in effect. The latest step, which was declared on January 31, 2024, is an addition to the existing measures.

• NCMC Transit Cards, FASTag, Prepaid Instruments, etc.

Prepaid instrument balances, FASTag balances, NCMC transport card balances, and so on are all freely usable, withdrawable, and transferable. On the other hand, topping up or adding more credits to these accounts is only permitted till February 29, 2024.

• Issues with Compliance and System Audit

The RBI's latest move comes after external auditors completed a thorough system audit report and a compliance validation report that followed. In March 2022, the RBI ordered Paytm Payments Bank to select an income tax audit company to conduct a comprehensive system audit of its IT infrastructure. When the issue of non-compliance was initially brought up in 2022, the investigation continued.

According to the RBI, "The 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 order further read that withdrawal or utilization of balances by the bank's 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.

It added that no other banking services, like fund transfers (irrespective of name and nature of services like AEPS, IMPS, etc.), BBPOU, and UPI facility should be provided by the bank after February 29, 2024.

Regulatory Directive Timeline

Following the RBI's earlier order in March 2022 to Paytm Payments Bank to immediately stop onboarding new customers, comes this most recent directive. Now, the apex bank has gone one step further and ordered that nodal accounts be terminated by February 29, 2024 and that all pipeline transactions and nodal accounts be settled by March 15, 2024, after which point no more transactions would be allowed.

"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, cashback, or refunds which may be credited anytime," the notification from the RBI noted.

"The Nodal Accounts of One97 Communications Ltd and Paytm Payments Services Ltd. are to be terminated at the earliest, in any case not later than February 29, 2024," the notice stated.

Paytm Payments Bank users are advised to be aware of the upcoming changes in transactions and make appropriate plans as the company deals with the regulatory ramifications. The RBI's choice is indicative of its dedication to upholding the integrity of the financial system and guaranteeing adherence to accepted standards. As a major participant in the Indian digital banking market, Paytm Payments Bank is currently going through a difficult time of transition and scrutiny as it attempts to address the flaws that have been uncovered.