Paytm Payments Bank: In the aftermath of the Reserve Bank of India's (RBI) regulatory measures against Paytm Payments Bank (PPBL), Union Minister Rajeev Chandrasekhar has underscored a critical lesson for fintech firms—compliance with regulations is non-negotiable. In an exclusive interview with PTI, the Minister of State for Electronics and IT pointed to the PPBL situation as a stark reminder that regulatory adherence cannot be dismissed by entrepreneurs, no matter how ambitious or dynamic.

Chandrasekhar highlighted the specific case of Paytm founder Vijay Shekhar Sharma, describing it as an instance where a zealous entrepreneur overlooked the imperative of regulatory compliance. He firmly asserted that regardless of the company's size or global origin, any entity must face consequences if found non-compliant with the law.

The RBI's recent action has restrained PPBL from accepting new deposits since March 15, and the regulatory body stands firm on its decision. Contrary to speculations, Chandrasekhar downplayed the idea that this regulatory move had caused widespread fear among fintech players. Instead, he framed it as a wake-up call for entrepreneurs to prioritize a thorough understanding and adherence to regulatory frameworks.

Chandrasekhar emphasized that regulatory compliance is not a choice, especially in India. He urged entrepreneurs to balance their intense focus on business development with a keen awareness of regulatory requirements, asserting that the two are not mutually exclusive.

The PPBL crisis, which includes the RBI's directive for customers and merchants to shift accounts by March 15, serves as a clear signal to the fintech sector. It underscores the indisputable importance of regulatory compliance and serves as a cautionary tale for ambitious entrepreneurs navigating the dynamic landscape of financial technology.

What is Paytm Payments Bank, and who owns it?

Paytm Payments Bank Limited (PPBL) is an associate of One97 Communications Limited (OCL). One97 Communications holds 49 per cent of the paid-up share capital (directly and through its subsidiary) of PPBL. Vijay Shekhar Sharma has a 51 per cent stake in the bank.

PPBL commenced operations as a payments bank with effect from May 23, 2017. Paytm Payments Bank offers digital banking, including savings accounts, current accounts, fixed deposits with partner banks, and balance in wallets, UPI, and FASTag, among other services.

Paytm Wallet, which comes under PPBL, leads the segment. As per RBI's provisional data for December 2023, Paytm Wallet users carried out 24.72 crore transactions worth over Rs 8,000 crore for the purchase of goods and services while 2.07 crore transactions were carried out for transferring over Rs 5,900 crore.

Why did Paytm Payments Bank come under the RBI lens?

The banking regulator had been frequently flagging off issues.

According to sources, money laundering concerns and questionable dealings of hundreds of crores of rupees between popular wallet Paytm and its lesser-known banking arm had led the Reserve Bank of India to clamp down on Vijay Shekhar Sharma-run entities.

Sources further said that PPBL had lakhs of non-KYC (Know Your Customer) compliant accounts and in thousands of cases single PANs were used for opening multiple accounts. There were instances of the total value of transactions -- running into crores of rupees, much beyond regulatory limits in minimum KYC pre-paid instruments raising money laundering concerns, sources said.

What has been the company's response to the RBI's Jan 31 action? While users have the option to switch to other wallets, and FASTag services etc being provided by other vendors, Paytm management has said that PPBL is in discussion with RBI to comply with their direction for continuing the business.

Paytm has said that its financial services such as loan distribution, insurance distribution, and equity broking are not in any way related to PPBL and are expected to be unaffected. 

Paytm sees an impact of Rs 300-500 crore on its annual operational profit. In two days, the company's market capitalisation (mcap) eroded by Rs 17,378.41 crore to Rs 30,931.59 crore. 

(With PTI inputs)