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Due to likely gaps in the technology systems of the Paytm Payments Bank, the RBI has decided to ban the Soft Bank-backed fintech company from onboarding any new customers.
This comes after Paytm recently shared its aspirations to become a small finance bank in the near future, an aspiration that seems to be now crippled.
The ban also comes as a blow to investors who are already skeptical of Paytm's ability to boost back its earnings after an expensive initial share sale.
RBI, on Friday, has released the official statement, "Onboarding of new customers by Paytm Payments Bank Ltd will be subject to specific permission to be granted by the Reserve Bank of India after reviewing the report of the IT auditors, This action is based on certain material supervisory concerns observed in the bank."
Read the official notice from the RBI here.
Following the statement from the RBI, a Paytm spokesperson observed the following, “We assure you that the recent RBI direction will not impact our existing customers in any way and they can continue to use our banking services seamlessly... We are taking necessary steps to comply with the directions of RBI and are committed to minimizing any inconvenience caused to our customers,"
The fintech has been directed to appoint an IT audit firm to conduct a comprehensive audit of its IT system.
It should be noted that the Paytm Payments Bank is a joint venture between Paytm founder Vijay Shekhar Sharma and One97 Communications, the parent company of Paytm.
It's also worthwhile to note that Vijay Shekhar Sharma owns 51% of the Paytm Payment's bank in his personal capacity.
Paytm Bank's struggle for the Small Finance Bank License
The RBI order comes crashing down upon Paytm Bank's hope of applying for a Small Finance Bank License this August. Paytm Bank has been in continuous rounds of discussion with the central bank to obtain an SFB license for expanding its operations in India.
However, after this decision, obtaining an SFB license seems a far dream for the fintech bank.
Moreover, Paytm has also been performing sub-par in the equities market, with nearly 2/3rd of its initial value wiped out from the market.
Unless Paytm Bank takes appropriate measures to align its operations with compliances from RBI, it's future as a small finance bank seems bleak.
This news story is brought to you by Jobaaj Stories in association with jobaaj.com
