— Copy of the press release

The Reserve Bank of India (RBI) has cancelled the banking licence of Paytm Payments Bank Limited. The action was expected, albeit just a formality. The central bank effectively shut down Paytm’s payments bank business in February 2024, when it banned the fintech company from accepting fresh deposits or top-ups in its Payments Bank accounts, wallets, and FASTags. These measures were in addition to a previous restriction on the Payments Bank, barring it from onboarding new customers since March 2022.

Why this matters: In January last year, the Paytm founder Vijay Shekhar Sharma told Bloomberg that he expected the Payments Bank to return to business soon. “We’ve learnt our lessons, and we’ve dramatically changed our approach towards the business,” he said.

However, the formal cancellation of the Payments Bank licence has all but shattered that hope. Sharma owned a 51% stake in the bank, and the remaining stake was held by One97 Communications, which owns the Paytm brand.

Had the Payments Bank run smoothly for five years, it could have converted into a Small Finance Bank. That would have allowed Paytm to also enter the lucrative lending business.

What the RBI has said now: The Payments Bank’s operations were conducted in a manner “detrimental to the bank and its depositors” in violation of Section 22 (3)(b) of the Banking Regulation Act, 1949 (BR Act).

• The bank’s management was prejudicial to the interests of depositors and the public. Therefore, it flouted the provisions of Section 22 (3)(c) of the BR Act, which stipulate that regulators grant or maintain a banking license only if a bank’s proposed or existing management does not prejudice the public interest or the interests of its depositors.

• Allowing the bank to operate as envisaged in Section 22 (3)(e) of the BR Act would not have served any useful purpose.

• The bank failed to comply with the conditions stipulated in its Payments Bank license, thereby violating Section 22(3)(g) of the BR Act. Failure to comply with these conditions, particularly those crucial for protecting depositors, can result in the cancellation of the license.

• The RBI stated that, effective April 24, 2026, it now prohibits Paytm Payments Bank from conducting the business of ‘banking’ as defined in Section 5(b) or any additional business specified under Section 6 of the BR Act.

What is Paytm’s response? In a statement, the company said its Payments Bank has sufficient liquidity to repay all customer deposits.

• The directive does not affect user deposits in the bank’s savings or current accounts, prepaid instruments, wallets, FASTags, or National Common Mobility Cards. However, Paytm did not clarify whether users could withdraw or transfer these funds or if there was a temporary freeze.

Under the RBI scanner since 2018: Paytm Payments Bank has been in the regulator’s crosshairs since at least 2018 due to persistent non-compliance. As per an article in CNBC TV-18,

“The RBI had found 31 crore out of 35 crore Paytm Wallets inoperative in its inspection, cases where a single PAN card was linked to thousands of accounts, absence of KYC for lakhs of accounts and violation of KYC-anti money laundering rules, instances of false compliance reports being submitted by the bank, PPBL’s financial and non-financial business co-mingled with its promoter group companies in violation of licensing conditions, and many other red flags, which pushed the regulator to put stringent curbs on the bank, bringing its operations to a standstill.” 

According to The Indian Express, there were also widespread concerns around data sharing with China-based entities, which first came to light when the RBI barred Paytm Payments Bank from onboarding new customers in March 2022. At the time, Paytm denied all allegations.

Timeline of Paytm Payments Bank’s operations and non-compliance issues

• August 2015: The RBI gave in-principle approval to Paytm founder Vijay Shekhar Sharma for setting up the Payments Bank.

• May 2017: Paytm Payments Bank Limited kicked off operations as a payments bank. The RBI issued a licence to the bank under Section 22 (1) of the BR Act to carry on the business of a payments bank in India.

• January 2018: Paytm Payments Bank rolled out physical RuPay debit cards.

• February 2019: PPBL launched a zero-balance current account for small and medium enterprises (SMEs) featuring real-time passbook updates and integrated bill payment.

• October 2021: The central bank imposed a penalty of Rs 1 crore on Paytm Payments Bank for providing false information during the application for a Certificate of Authorisation (CoA).

• March 2022: The RBI directed Paytm Payments Bank to stop onboarding new customers.

• November 2022: Paytm’s subsidiary, Paytm Payments Services Limited (PPSL), was barred from onboarding new online merchants to its payment aggregator business.

• October 2023: The RBI imposed a fine of Rs 5.39 crore on Paytm Payments Bank for non-compliance with the central bank’s Know Your Customer (KYC) directions, licensing guidelines, and cybersecurity framework.

• January 2024: The Indian Highways Management Company (IHMCL), an arm of the National Highway Authority of India (NHAI), barred Paytm Payments Bank from issuing fresh FASTags.

• January 2024: The RBI barred Paytm Payment Bank from accepting deposits or top- ups in any customer account, prepaid instruments, wallets, FASTags and NCMC cards after February 29, 2024, owing to compliance and material supervisory concerns.

• April 2026: The RBI scrapped Paytm’s banking licence. The RBI will now wind up the payments bank and approach the High Court for the process.

Also Read:

• All you need to know about RBI’s restrictions on Paytm Payments Bank
• After Postpaid, Paytm Eyes Revival of Wallet: Q3FY26 Earnings Call
• Paytm Gets Final Nod From RBI To Operate As Online Payment Aggregator