India is considering imposing additional penalties on Paytm, which may even include the revocation of its payments bank license

The Reserve Bank of India is currently engaged in discussions regarding potential penalties for Paytm Payments Bank. According to two sources familiar with the matter, a decision may be reached in the coming days. This development adds to the mounting troubles faced by the Indian financial services firm, which boasts a customer base of over 330 million.

According to undisclosed sources, the central bank has been considering the possibility of revoking Paytm’s payments bank license. The sources, who wish to remain anonymous, are not authorized to provide information to the press. No response was received from RBI when asked for comment on Thursday.

The RBI has issued a strongly worded letter, imposing new restrictions on Paytm Payments Bank. These measures effectively mean that the Payments Bank will have to cease most of its operations within a span of six weeks.

In 2022, Paytm Payments Bank faced penalties from the RBI due to its violation of rules. The Noida-based company allowed data to be transferred to servers outside of India and failed to adequately verify its customers. On Wednesday, RBI revealed that a thorough audit by external auditors had found persistent noncompliances and significant supervisory concerns within the bank. According to the RBI, there is a need for additional supervisory measures because of the lack of compliance.

According to a source, the central bank has recently summoned two Paytm officials to its office to address compliance issues. As a result, the decision has been made.

Paytm announced on Thursday its decision to discontinue its partnership with Paytm Payments Bank and instead, seek collaborations with other banks for a range of its financial services. A payments bank license enables the holder to provide fundamental banking services, including accepting customer deposits of up to $2,400. Paytm has announced that it will only collaborate with other banks, rather than its own Paytm Payments Bank Limited. This information was shared with the stock exchange on Thursday.

Paytm’s stock took a significant hit today, dropping a staggering 20% shortly after the market opened. This sharp decline triggered the lower circuit, resulting in a halt in trading for the rest of the day. The Paytm share closed trading at 608.8 Indian rupees, or $7.3, which is significantly below its initial issue price.

The RBI’s notice has caused quite a stir in the Indian fintech industry, which has already faced numerous regulatory clarifications in recent years. In December, Paytm announced a reduction in the number of personal loans it would offer below 50,000 Indian rupees ($600). This decision came after the RBI implemented stricter regulations for consumer loans and publicly voiced concerns about the negative impact of small personal loans.

According to Macquarie analysts, who have a reputation for making accurate predictions about Paytm, it seems that the Reserve Bank of India took around 15 months to lift its ban on the digital business activities of the largest private sector bank. Since the initial ban in March 2022, it has been approximately 22 months, and the RBI has conducted a thorough IT audit. They have consistently found instances of non-compliance, which suggests that these lapses are significant.

One97 Communications, the parent company of Paytm, holds a 49% stake in Payments Bank, while the remaining equity is owned by Paytm founder Vijay Shekhar Sharma. Early in 2017, the RBI gave Paytm final approval for its payments bank.