Tag: rbi

Paytm Payments Bank CEO Surinder Chawla Resigns

Beleaguered Paytm Payments Bank’s managing director and CEO Surinder Chawla has resigned from the company, a regulatory filing said on Tuesday.

Chawla’s resignation comes amidst Paytm Payments Bank facing prohibitory action from banking regulator RBI.

“Surinder Chawla, Managing Director and CEO of PPBL, has tendered his resignation on April 8, 2024, on account of personal reasons and to explore better career prospects. He will be relieved from PPBL w.e.f. close of business hours on June 26, 2024, unless changed by mutual consent,” One97 Communications, Paytm brand owner, said in a regulatory filing.

Chawla joined PPBL in January last year after the payments bank received approval from the Reserve Bank of India.

In a major action against Paytm Payments Bank (PPBL), RBI, on January 31, directed it to stop accepting deposits or top-ups in any customer accounts, wallets, FASTags and other instruments after February 29. Subsequently, the deadline was extended to March 15.

The direction follows persistent non-compliance and continued material supervisory concerns, the central bank had said in a statement.

On March 11, 2022, the RBI barred PPBL from onboarding new customers with immediate effect.

Following regulatory actions, promoter Vijay Shekhar Sharma last month stepped down as part-time non-executive Chairman of Paytm Payments Bank Limited, and the board of the bank has been reconstituted.

Former Central Bank of India chairman Srinivasan Sridhar, former Bank of Baroda Executive Director Ashok Kumar Garg, and two retired Indian Administrative Service (IAS) officers were inducted on the board of the bank.

One97 Communications Limited (OCL) holds a 49 percent stake in PPBL.

Paytm said nearly all agreements between the company and PPBL have been terminated as per a disclosure on March 1, 2024, and the board of PPBL has been reconstituted with five independent directors including an independent chairperson, and no nominees from the company, as per its disclosure on February 26, 2024.

“In line with our ongoing efforts, the company continues to collaborate with banking partners to enhance our merchant acquiring and UPI services,” the filing said.

The National Payments Corporation of India on Thursday granted One97 Communications Ltd the approval to participate in UPI as a Third-Party Application Provider (TPAP) under the multi-bank model.

Axis Bank, HDFC Bank, State Bank of India, and YES Bank will act as Payment System Provider (PSP) banks to Paytm.

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RBI Proposes Support for CBDC Distribution via Non-Bank Payment Operators

Several countries, including India, are expanding central bank digital currency (CBDC) trials, hoping to integrate then with their existing financial systems. The Reserve Bank of India has proposed the expansion of support for the digital rupee CBDC within the retail ecosystem beyond banks. In the coming days, the RBI is expected to start circulating the digital rupee through payment system operators who are not part of the banking system. The detail was disclosed on Friday in a statement by RBI Chief General Manager Yogesh Dayal.

Until now, India’s CBDC distribution was being conducted by banks that are part of its trials. Moving forward, however, RBI is likely to allow platforms like Google Pay and PhonePe also to distribute the digital rupee in the retail ecosystem.

“CBDC pilots in the retail and wholesale segments are underway with more use-cases and more participating banks. Continuing with this approach, it is proposed to make CBDC-retail accessible to a broader segment of users in a sustained manner, by enabling non-bank payment system operators to offer CBDC wallets,” Dayal said in a prepared statement issued by the RBI.

CBDCs are a virtual representation of the fiat currency of a country. Built on blockchain networks, they work like cryptocurrencies but are issued by a central bank. Through CBDCs, people can process quick payments of hefty amounts and all the transaction history will be stored in a permanent, unchangeable format.

“This is expected to enhance access and expand choices available to users apart from testing the resiliency of the CBDC platform to handle multi-channel transactions. Necessary changes will be made to the system to facilitate this,” the official said in the statement.

Since December 2022, the RBI has clocked an impressive feat in conducting research and development around the digital rupee. The CBDC is currently in an advanced trial phase in India.

In February this year, the RBI had spoken about its plans to experiment with offline solutions to drive the adoption of CBDC in those parts of India that are not as well connected to the Internet as developed cities.

In 2023, the State Bank of India introduced UPI interoperability with the digital rupee. Canara Bank also rolled out a similar offering.

“As per the data published in the balance sheet of the Reserve Bank of India as on March 31, 2023, the e-Rupee issued for CBDC (Retail) at Rs 5.70 crore,” the RBI had stated in February while answering an RTI appeal.

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Paytm Gets Third-Party UPI App License From NPCI as Payments Bank Ceases Operations

Indian digital payments firm Paytm, formally known as One 97 Communications, was on Thursday granted a third-party application provider license by the country’s payments authority, which will enable it to facilitate payments after its banking unit ceases operations.

The license will allow customers to continue using the Paytm app for payments through India’s popular unified payment interface (UPI), after Paytm Payments Bank ceases operations by March 15, following regulatory action due to non-compliance with certain norms.

Axis Bank, HDFC Bank, State Bank of India and Yes Bank will act as payment system provider banks to Paytm, the National Payments Corporation of India (NPCI) said in a statement.

Yes Bank shall also act as a merchant acquiring bank for existing and new UPI merchants for Paytm, it added.

Paytm has been advised to complete the migration for all existing handles and mandates, wherever required, to new payment system provider banks at the earliest, the NPCI said.

UPI is India’s real-time payments system that allows users to transfer money across banks.

Paytm, the third-largest app for UPI payments in the country, processed 1.41 billion monthly transactions worth 1.65 trillion rupees in February, down from 1.57 billion transactions worth 1.93 trillion in January, according to data on the NPCI website.

PhonePe and Google Pay are the two largest UPI payment apps in India.

Last month, the Reserve Bank of India (RBI) had asked the NPCI to examine a request from Paytm to become a third-party application provider.

Early this week, Reuters was the first to report that the NCPI was likely to approve a third-party application provider (TPAP) license for Paytm.

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Paytm Payments Bank Said to Cut About 20 Percent of Staff as Business Halt Looms

Indian digital payments firm Paytm plans to cut close to 20 percent of staff at its banking unit amid uncertainty over the unit’s future due to a looming central bank deadline for it to halt most operations, two sources said.

Paytm Payments Bank has decided to lay-off staff in certain divisions, including operations, the sources with direct knowledge of the matter said.

The unit had 2,775 employees as of December 2023, data from information provider Tracxn shows.

Paytm, formally known as One 97 Communications, owns a 49 percent stake in the bank which was ordered by the Reserve Bank of India (RBI) at the end of January to stop accepting credit transactions or deposits across products such as savings accounts, prepaid cards and digital wallets by March 15, following persistent compliance breaches.

Paytm shares have lost 54 percent of their value since the regulatory clampdown, in the worst crisis for one of India’s largest digital payment firms.

“Since this regulatory order has coincided with appraisal season, employees with low ratings have been asked to leave,” the first source, an employee at the banking unit, said.

“Employees are frustrated because the management has gone back on their word that nobody will be laid off,” this person said.

In an internal town-hall meeting in February, Paytm CEO Vijay Shekhar Sharma assured the bank’s staff there would be no layoffs, the second source, also a banking unit employee, said.

Neither source wished to be identified as they are not authorised to speak to the media.

A spokesperson for Paytm Payments Bank declined to comment.

A Paytm spokesperson said: “There are no layoffs here.” The annual appraisal cycle is underway at the company which may lead to adjustments based on performance evaluations and role suitability, this spokesperson added. “It’s crucial to understand that this process is distinct from layoffs”.

After Friday’s deadline, customers who have deposits in the bank’s accounts, wallets and toll tags for paying highways taxes, can still access them. But no fresh deposits can be made.

Paytm Payments Bank will also still hold a regulatory licence unless it is withdrawn by the RBI.

It is unclear what purpose Paytm Payments Bank will serve after the business halt, the second source said.

Both sources said there had been no update from Paytm on what banking staff would do after the move.

Paytm has absorbed about 100 employees from the banking unit, the second source said.

Paytm, which has been using its banking unit to back digital payments through its own app, is expecting to get a licence this week from the National Payments Corp of India (NPCI) that would allow its customers to continue using the Paytm app for payments through the country’s popular unified payment interface (UPI).

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Financial Intelligence Unit Imposes Penalty of Over Rs. 5 Crore on Paytm Payments Bank

India’s Financial Intelligence Unit (FIU) on Friday imposed a penalty of Rs. 5,49,00,000 ($662,565) on Paytm’s banking arm, Paytm Payments Bank, for violations in reporting illegal money routed through its accounts, the country’s finance ministry said.

The FIU initiated a review of Paytm Payments Bank after information from law enforcement agencies about some entities engaged in illegal acts, including organising and facilitating online gambling, and routing proceeds through the bank.

“The money generated from these illegal operations, i.e. proceeds of crime, were routed and channelled through bank accounts maintained by these entities with the Paytm Payments Bank,” the ministry said in a statement.

The payments bank failed to report suspicious transactions and conduct due diligence of these accounts, the FIU’s order said.

Based on the “voluminous” material available on record, it found that the charges against Paytm Payments Bank were substantiated, the ministry added.

The penalty pertains to issues within a business segment that was discontinued two years ago, a spokesperson for Paytm Payments Bank said. The company has since enhanced its monitoring systems and reporting mechanisms to the FIU, the spokesperson added.

Earlier in February, the Reserve Bank of India (RBI) had asked Paytm Payments Bank to wind down operations by March 15 due to persistent compliance issues and supervisory concerns.

Paytm had earlier said that it received notices for information and explanations from the authorities, including the financial crime fighting agency Enforcement Directorate, and was providing them the same.

Meanwhile, Paytm has cut some ties with its payments bank unit in an attempt to address compliance concerns that triggered a meltdown in its shares last month.

Paytm CEO Vijay Shekhar Sharma owns a 51 percent stake in Paytm Payments Bank, while Paytm owns the rest.

Earlier this week, Sharma stepped down as non-executive chairman and board member of the payments bank unit, as part of a major overhaul.

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Paytm Terminates Some Ties With Troubled Payments Bank Unit

Payments firm Paytm on Friday cut some ties with its payments bank unit, which India’s banking regulator has ordered to be wound down, in its latest attempt to address compliance concerns that triggered a meltdown in its shares last month.

Paytm, formally known as One 97 Communications, and its banking unit mutually agreed to end various inter-company agreements, the company said. It did not specify what agreements were being terminated.

Paytm Payments Bank also agreed to simplify the shareholders’ agreement to support governance, independent of its shareholders, Paytm said.

“Paytm and Paytm Payments Bank will not be entering into related-party transactions henceforth as per the agreement,” a source familiar with company’s strategy said.

The source did not wish to be identified because he was not authorised to speak with the media. Paytm did not immediately respond to a Reuters’ email seeking comment.

Paytm CEO Vijay Shekhar Sharma owns a 51 percent stake in Paytm Payments Bank while Paytm owns the rest. The move comes days after Sharma stepped down as non-executive chairman and board member of the payments bank unit, as part of a major overhaul.

The Reserve Bank of India (RBI) had asked Paytm Payments Bank to wind down operations by March 15 due to persistent compliance issues and supervisory concerns.

“Paytm has accepted that the payments bank license will be cancelled, but is keeping the door open to enter into financial services in the future,” the source said.

Paytm’s shares were up more than 4 percent at Rs. 420 the day after the announcement.

“The termination of agreements ensures a complete severance of ties between Paytm and the payments bank,” said Pranav Gundlapalle, senior research analyst at Bernstein, adding that continued Paytm operations after March 15 was a sign that they were getting past the regulatory overhang.

“Evidence that the troubles are limited to Paytm Payments Bank and further evidence that the two are going to be separate entities will drive upside (for the stock),” Gundlapalle said.

Moves including Paytm signing a new banking partner and the RBI moving to ensure the continuity of unified payments interface (UPI) transactions on the Paytm app have helped shares to recover from a record low hit in mid-February.

The shares are still down almost 45 percent since the RBI action on January 31.

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RBI Moves to Ensure UPI Transactions on Paytm Continue to Work After Strictures on Paytm Payments Bank

The Reserve Bank of India said on Friday it has asked the National Payments Corporation of India (NPCI) to examine a request from Paytm, formally known as One 97 Communications, to become a third party application provider (TPAP).

If approved, this would allow Paytm to continue processing payments via India’s popular unified payments interface (UPI), but will need a set of newly identified banks to back the app.

The NPCI should facilitate four to five banks, with an ability to process high volumes of UPI payments, to act as service providers to Paytm, the RBI said of Friday.

“No new users are to be added by the said TPAP until all the existing users are migrated satisfactorily to a new handle,” the RBI said.

Last month, the central bank asked Paytm Payments Bank, an associate of Paytm, to wind down its business by March 15, leading to disruption for the popular payment app, which used the banking unit at the back end.

Paytm is the third largest app for UPI payments in the country, processing 1.6 billion monthly transactions, according to data available on the NPCI website. PhonePe and Google Pay are the two largest.

To keep Paytm QR codes running, the company may open settlement accounts with one or more banks, the RBI said.

Paytm said last week it had signed on Axis Bank to act as a banking partner.

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Paytm Crackdown Signals More RBI Scrutiny on India Banks

For Indian regulators seeking to crack down on potential fraud in the financial sector, Paytm may just be the beginning.

India stunned investors last month by abruptly suspending most activities of the banking affiliate of Paytm, a once high-flying fintech star that had attracted backing from Warren Buffett and SoftBank Group. While the Paytm case was an extreme example of lapses in customer verification — it allegedly used a single identity document to open thousands of accounts — the crackdown signals growing impatience from authorities.

Hardly a day passes when a bank or fintech firm isn’t fined for failing to properly vet its customers, ensnaring top lenders from State Bank of India to Citigroup. Fed up with the persistent shortcomings, the Reserve Bank of India is likely to get even tougher before Governor Shaktikanta Das’ scheduled term ends this year.

“RBI has enough tools and a penalty is just the beginning,” said Prakash Agarwal, founder of Gefion Capital Advisors. He said the fines serve as a “symbolic warning for more dire measures to come, such as a sledgehammer action taken against Paytm bank.”

Regulatory concerns are rising as lenders rush to open more accounts and mop up deposits to meet the soaring demand for loans in the fastest-growing major economy. Most banks typically outsource the last mile of customer verification to third-party firms or so-called runners, and leakages occur at many points in that largely paper process, according to Ashok Hariharan, chief executive officer of IDfy, which provides client vetting services to banks and fintechs firms in India. 

While big banks can do more, it’s a challenge dealing with firms that don’t have strict fraud and risk teams, he said.

RBI Governor Das has repeatedly warned about the need to strengthen risk management in banks and shadow lenders. Even though bad debts are at a more than decade low, these lapses in customer verification have been among major concerns for the central bank.

“The interest of depositors and customers is of prime importance,” Das said in a post-monetary policy briefing this month. “Financial stability is of prime importance.”

While Indian banks have boosted spending on technology to detect potential money laundering and prevent fraud, the cases are rising. The number of reported frauds of more than Rs. 100,000 ($1,205) rose 68 percent to more than 14,000 from April to September last year, almost triple the rate for the previous six-month period, according to an RBI report. The sharpest increase of fraud cases was in credit cards, online transactions and deposits, the data show. 

RBI, which can levy a maximum penalty of Rs. 50 million for violations, imposed fines of Rs. 400 million in the fiscal year that ended in March, down from Rs. 650.3 million the prior year. Still, in the current fiscal year, the frequency of such fines has increased sharply, as can be parsed from the central bank’s website. 

“RBI getting stricter on KYC is the right thing to do, and people are going to get serious about it now,” said IDfy’s Hariharan. “In many instances, there is a frivolous attitude toward KYC.” 

Customer data in the country has been misused, according to Hariharan. In a typical set-up, fraudsters pay runners who collect so-called Know-Your-Customer documents for bank customers and offer them as little as Rs. 500 for the data, he said. This allows fraudsters to operate multiple bank accounts from the identity theft, and they collect money in these accounts by duping customers largely through phishing calls, he added.

Crackdown

In addition to its crackdown on banks, RBI ordered Visa this month to immediately stop a payments service where cards were used to transact with merchants who weren’t allowed to accept such payments.

Yet no recent case has drawn as much attention as Paytm, controlled by billionaire Vijay Shekhar Sharma. The firm burst onto India’s equity markets in 2021 with a $2.5 billion (roughly Rs. 20,737 crore) initial public offering, the largest ever in the country and attracted a who’s who of global investors. Masayoshi Son’s SoftBank was on board, as was China fintech giant Ant Group and the Canada Pension Plan Investment Board.

Its affiliate company, which takes deposits and offers payment services much like PayPal Holdings, has been in the regulator’s crosshairs. On January 31, India’s central bank barred Paytm Payments Bank from accepting fresh credits in its customer accounts or mobile wallets after February 29. Bloomberg News has reported that hundreds of thousands of customers didn’t submit their KYC documentation. 

The RBI move dealt a big blow to Paytm and sent its stock tumbling. Regulators last week extended that deadline to March 15, and Paytm is in talks with other banks to clear merchant payments.

Compliance and accountability are big challenges for the financial system, which now includes a lot of links among banks, fintechs and others, according to K.V. Karthik, who leads the financial services sector for Deloitte in India. 

“With such a sharp growth in so many small fintech firms in the ecosystem, RBI probably wants to put out a stern and clear message that everyone must follow rules very seriously,” said Gefion Capital’s Agarwal.  

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Paytm Crisis: Non-Bank Lenders Said to Explore Options for Loan Disbursal

Indian non-bank lenders are looking at options other than Paytm for loan disbursal, worried about the regulatory crisis engulfing the firm that has led to a temporary halt of lending services, sources with direct knowledge of the matter said.

Paytm’s banking unit on January 31 was hit by a central bank order to wind down its business due to persistent non-compliance with rules and a day later Paytm said it would not be originating loans for “maybe a couple of weeks” to resolve operational challenges.

If Paytm’s lending partners were to distance themselves from the company, that would be a further major blow to the app. Loan distribution fees contributed close to a fifth of Paytm’s revenues in the latest quarter, analysts have said.

While non-bank lenders have not terminated their contracts with Paytm, sources said that they have no visibility as to when they might be able to resume lending through the Paytm app.

“We have been speaking to the company about regulatory issues and until those are resolved, we want to stay away and explore other options for loan disbursal,” a senior executive at one of Paytm’s lending partners said.

The executive was one of three sources at the non-bank lenders who said that options were being explored. They were not authorised to speak to media and declined to be identified.

A Paytm spokesperson said that while new lending from lending partners had been put on hold for a couple of weeks, the company “would like to stress upon the fact that it is solely due to operational reasons and our relationship with our lending partners remains intact.”

Paytm has seven non-bank lending partners: Aditya Birla Finance, Hero Fincorp, Piramal Capital, Poonawalla Fincorp, Shriram Finance, SMFG India Credit and Tata Capital.

None of the non-bank lenders responded to Reuters requests for comment. Most also have partnerships with other digital payments firms.

Paytm, known formally as One 97 Communications, disbursed loans worth 155 billion rupees ($1.9 billion) on behalf of the seven lenders in the October-December quarter, according to a company presentation to investors.

“Lending was expected to become the key driver of earnings in the near future and hence accounted for the bulk of Paytm’s (market) valuation,” said Pranav Gundlapalle, senior research analyst at AllianceBernstein.

Paytm shares tumbled another 10% on Tuesday to fresh record lows after brokerage house Macquarie said the company faced a serious risk of customer exodus. The stock has halved in value since Jan. 31.

It remains to be seen just how extensive the financial and reputational impact of the winding down of Paytm Payments Bank will be on Paytm.

Owners of the 330 million digital wallets at the bank will not be able to add to their deposits after February 29 but will be allowed to withdraw their money. While the deadline might be extended to allow for a smoother transition of some bank-related services, the central bank has said it will not review its decision to halt business at the bank.

Having its own payments bank allowed Paytm to process transactions at a lower cost than other digital payments firms. Paytm has said it is working on securing new banking partners.

Payments can, however, still be made on the Paytm app using India’s popular Unified Payments Interface (UPI) digital payments system.

The crisis has, however, seen many merchants refuse to accept payments via Paytm while Walmart’s PhonePe and Google Pay have seen demand surge for their services.

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