The Paytm Chronicle Continues: What We Know So Far, From FAQs to RBI’s Firm Stand

Shaktikanta Das, the governor of the Reserve Bank of India, said on Monday that there was “hardly any room” to examine the action taken against Paytm Payments Bank. Additionally, he said that the RBI only takes action against regulated firms after a thorough evaluation.

Das emphasized that the RBI is in favor of the fintech industry but also said that it is dedicated to safeguarding consumer interests and maintaining financial stability.

FAQs for Paytm

A series of FAQs (Frequently Asked Questions) will be released this week by the Reserve Bank to address a variety of concerns raised by clients of the struggling Paytm Payments Bank (PPBL).

A collection of explanations pertaining to PPBL consumers will be included in the FAQ; our top aim is to ensure that customers are not inconvenienced. The interests of our customers and depositors come first, Das said after the Finance Minister’s traditional speech to the board of the central bank.

RBI ordered PPBL to cease taking deposits or top-ups in any user accounts, wallets, FASTags, or other instruments after February 29 as part of a significant action against the company on January 31.

When asked if the February 29 deadline will be extended, Das said, “Wait for the FAQ.”

“Don’t anticipate the RBI’s decision to be reviewed in the FAQ. FAQ will cover problems pertaining to wallet users, consumers, depositors, and FASTag holders. Whatever is best for our clients is what we address in the FAQ,” he said.

Continuous Non-Compliance

The Reserve Bank of India (RBI) claimed that severe action was taken against Paytm due to its persistent non-compliance with regulatory requirements, despite many prods over a period of time. The RBI further clarified that there are no systemic concerns.

Das has said unequivocally that Paytm’s noncompliance with regulations does not represent a systemic concern, even if it has not revealed the precise circumstances that led to the action against the fintech.

“At this time, there are no concerns with the system. Here, we are discussing a particular organization, a certain payment bank,” Das had said after the MPC declarations the previous week.

According to Das, the process begins with the regulator giving “nudges” for remedial action. Occasionally, the RBI may give an organization more than enough time to comply, and the business limitations order is the result of noncompliance.

Before enforcing any restrictions, Das said that the proportionality factor is taken into account. “All our actions are in the best interest of systemic stability and protection of depositors’ or customers” interest,” Das continued.

These elements cannot be sacrificed. For long-term success, individual entities should be aware of these factors.

Paytm App Is Unaffected

According to RBI, the regulatory action is directed against Paytm Payment Bank Ltd and would not have any effect on the Paytm App.

To be clear, this action is not to be mistaken with the Paytm App; rather, it is directed at Paytm Payments Bank.Following the bi-monthly MPC meeting, RBI Deputy Governor Swaminathan J told the media that “App is not impacted by this action.”

When asked whether banks could work with Paytm wallets, he said that it was a business choice and that they needed to follow their board-approved policy and do the necessary due diligence.

“If they have to do a partnership, I’m sure they’ll do their due diligence,” he said.

In response to a question concerning the choice to implement the rather severe business restrictions rather than exploring other options, such as adding a director to the board, as has been done in certain instances recently, Swaminathan stated that a “one size fits all kind of solution may not work in such situations.”

The operational Paytm app

“We assure our users and merchant partners that the Paytm app remains fully operational, and our services are unaffected,” a Paytm spokeswoman said in response to the RBI’s explanation.

According to the spokesman, Paytm is keen to expand its service offerings via collaborations with other institutions and is still at the forefront of mobile payment innovation.

“We guarantee that the Paytm QR, Soundbox, and card readers will function as they usually do for our merchant partners. A spokesman said, “We are still committed to offering easy payment options and encouraging financial inclusion across India.

Approval for Downstream Investment in Paytm Payment Services Was Not Received

On Monday, One97 Communications said that the government had not given its clearance for downstream investment in Paytm Payment Services Ltd., a subsidiary of the payment aggregator.

In accordance with the guidelines on Regulation of Payment Aggregators and Payment Gateways, PPSL submitted an application for a license to operate as a payment aggregator to the RBI in November 2020.

But in November 2022, the RBI denied PPSL’s application and requested that it be resubmitted in accordance with Press Note 3 of the FDI regulations.

In addition, PPSL requested permission from the Indian government in its application for the downstream investment that the company made in PPSL. This clearance is still pending. The stock exchanges will be updated as soon as clearance is granted. Paytm said in a regulatory filing that “PPSL is still providing services to its current online merchant partners in the interim.”

In November 2022, the banking regulator requested that the company resubmit its applications within 120 days of receiving government permission for OCL’s investment into PPSL in accordance with FDI norms.

The regulator instructed PPSL to go on with business as usual, provided that no new merchants sign up.

Once the 120 days had passed, RBI gave PPSL another extension, but this time they left the barrier to new merchant onboarding in place.

In response to the COVID-19 outbreak, the government implemented Press Note 3, which mandates prior clearance for foreign investments in any industry from nations sharing a land border with India. The goal of this move is to prevent opportunistic takeovers of Indian enterprises.

China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan are nations that border India on land.

Chinese businesses have made large investments in Paytm.

We also want to draw attention to the fact that the company’s ownership structure has changed, with Mr. Vijay Shekhar Sharma, the founder of Paytm, now serving as the only Significant Beneficial Owner. On September 03, 2023, the stock exchanges were notified of this, according to the filing.

In August 2023, Paytm said that Sharma will purchase a 10.3 share via his foreign business Resilient Asset Management BV, making him the company’s top shareholder with a 19.42% share.

To preserve the financial interest of the Alibaba Group company, Resilient provided Antfin with an option to convert its loan instrument into debentures.

Antfin’s direct ownership in Paytm was decreased to 13.5% as a result of this transaction. In order to reduce its stake in Paytm to less than 10%, Antfin sold an additional 3.6% of the company. As of right now, it owns 9.89% of the fintech company.