RBI Cancels License of Paytm Payments Bank Limited
Why it matters
The Reserve Bank of India (RBI) issued the cancellation order following persistent non-compliance with several clauses of Section 22(3) of the Banking Regulation (BR) Act, 1949. The regulator found the bank's affairs were detrimental to depositors (Section 22(3)(b)) and that the management's general character was prejudicial to the public interest (Section 22(3)(c)). Furthermore, the bank failed to adhere to the specific conditions of its Payments Bank license under Section 22(3)(g).
This final regulatory action follows a timeline of escalating restrictions. The bank was first ordered to stop onboarding new customers on March 11, 2022. On January 31 and February 16, 2024, the RBI imposed business restrictions that blocked additional deposits, credits, or top-ups in existing customer accounts and wallets. Despite the license cancellation, the RBI stated that Paytm Payments Bank Limited maintains enough liquidity to repay its entire deposit liability during the winding-up process, which will be initiated via an application to the High Court.
| Statutory Provision | Regulatory Finding |
|---|---|
| Section 22(4) | Legal authority for the cancellation of the banking license |
| Section 5(b) | Definition of banking business the bank is now prohibited from performing |
| Section 22(3)(e) | Finding that continuing the bank serves no useful purpose or public interest |
| Section 6 | Additional business activities now prohibited for the institution |
Glossary
Banking Business (Section 5(b)): The acceptance of deposits from the public for the purpose of lending or investment, withdrawable on demand or otherwise.
Winding up: A legal procedure where a bank's operations are closed, and its assets are liquidated to repay creditors and depositors.