The RBI faces difficult and unique difficulties from Paytm Payments Bank

The RBI faces difficult and unique difficulties from Paytm Payments Bank

The RBI's determination to combat instances of "persistent non-compliance" is shown by its readiness to prosecute Paytm Payments Bank, which is controlled by a well-known entrepreneur.

Industry sources claim that Paytm's senior management does not value the central bank, and that starting on March 11, 2022, the lender will not be able to accept new clients.

There have been claims that the Indian Supreme Court is the most powerful high court in the world. Although this is true or not, the Central Bank of India, another esteemed organization, has undoubtedly reached the pinnacle of legitimacy; yet, no one has yet to characterize it as the most powerful in its category globally.

Governor Shaktikanta Das said on Thursday, "The Reserve Bank of India established itself as a governing body that stands for credibility, trust, and economic progress over the years." The majority of experts agree with this assertion and, to some degree, see it as an organization to be wary of in light of the severe disciplinary measures taken against Paytm Payments Bank.

The RBI had prohibited HDFC Bank from issuing new credit cards in December 2020; however, this prohibition was reversed in March 2022. Although the action against HDFC Bank is the most equivalent, regulatory action has also been taken lately against Bajaj Finance and Bank of Baroda. In opposition to Paytm Payments Bank.

Unsurprisingly, almost as many questions about Paytm Payments Bank were raised during Thursday's post-monetary policy press conference as there were about the direction of interest rates going forward. The regulator has been working with Paytm Payments Bank for over two years, as well as both Governor Das and Deputy Governor Swaminathan Janakiraman have made it apparent that their tolerance is running out.

The central bank, which skillfully managed the collapse of Yes Bank in February and March 2020, would have challenges while dealing with Paytm Payments Bank, since it was requested to cease taking new deposits and account top-ups. has been requested, along with additional limitations, and pre-paid equipment like Fast Tag. Numerous experts predict that it may lose its license.

There may be concerns about the RBI's comprehension of the effects on the approximately 40 million merchants who use Paytm as well as the potential transfer of Paytm Payments Bank depositors to other banks.

A news statement detailing the RBI's proceedings against Paytm Payments Bank is scarce, in contrast to the monetary policy of the day, which was quite broad.

It is evident that the RBI Act does not mandate the issuance of a formal show-cause notice or a speaking order. The decision, according to several startup entrepreneurs, may harm India's expanding financial industry.

Despite all of this, the RBI has shown its competence and readiness to act in such circumstances by taking action against Paytm Payments Bank, which is 51% owned by a well-known founder who some see as a symbol of the new generation of Indian entrepreneurs. The act of consistently failing to comply with regulatory standards.

Industry sources claim that Paytm's senior management does not value the central bank, and that starting on March 11, 2022, the lender will not be able to accept new clients.

Since then, the listed company One97 Communications, which runs the payments app, has had trouble getting approved by the RBI. As a result, a committee led by former SEBI chairman M. Damodaran was appointed to make sure the group "adheres to the regulatory along with compliance framework." One97 Communications is the owner of the remaining 49% of Paytm Payments Bank.

The effect on the listed company may be significant, as mentioned in the Moneycontrol article. The company Paytm will fail if it is unable to locate a bank that would host its wallet, which now has 330 million wallet accounts at Paytm Payments Bank.

Nodal accounts, which are effectively escrow accounts used to retain money while it is transferred to and from clients and companies, are another kind of company that might fail. A Moneycontrol research states that 40 million retailers use them.

Should Paytm Payments Bank lose its license, the public business would have a far smaller footprint.

Due to all of this, Paytm Payments Bank differs substantially from other failing banks, such Lakshmi Vilas Bank, which was bought, or Yes Bank, where the previous management was removed and a new set of shareholders, most notably State Bank of India, were brought in. by DBS, situated in Singapore.

The RBI may need to take action to guarantee the smooth transition of Paytm Payments Bank's operations if it decides to suspend or revoke its license. It could think about joining forces with another payment bank.

As something that would "yield rich dividends to the country while positioning Report Phrase it on a high growth path in the years to come," the RBI Governor complimented the central bank's "tireless efforts towards maintaining a good balance amongst price stability, financial stability, particularly external stability" in his statement.

A "leader in promoting technological advancement and innovation in the financial sector" was another goal mentioned in the declarations, however corporations and individuals who prioritize profit above laws often create these kinds of advances.

The payments platform Alipay, which is owned by Alibaba and provides a number of services including microloans and trip booking, serves as the foundation for Paytm and other fintechs. Paytm is frequently referred to as the Alipay of India, which is not unexpected. The Xi Jinping government has brutally cracked down on the latter, which is a part of the larger Ant Group that is controlled by Jack Ma. At the moment, Ant Group controls around 20% of One97 Communications. In reaction to attempts by the Indian government to dissuade Chinese investment, it is cutting its shareholding.

The governor said, "As India occupies a leading position in the new international system, the contribution of the RBI is being acknowledged widely in India and abroad."

Fintech regulations from the RBI will cause a stir in one way or another.