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RBI’s Crackdown – Good, Bad & Ugly

Paytm, one of India’s leading payment companies, is affiliated with Paytm Payments Bank (PPBL). It has a customer base of more than 64 million individuals; in turn, it serves at least 20 million merchants, offering accounts, cards, wallets, FASTags, and several other prepaid facilities. RBI restricted its operations in January 2024 citing persistent non-compliance and supervisory concerns. Consequently, PPBL can only offer a few banking services, impacting new customers and transaction activities.

Impact on Customer Transactions

RBI’s directive on Paytm Payments Bank has greatly affected customers who can’t use their account from March 1 onwards either to deposit or top-up. It gives rise to an alternative service provider’s move with challenges such as KYC processes, balance transfers, difficulty with payment detail adjustment, and possible Paytm privilege loss.

User responses varied from frustration to rage on social media using hashtags such as #PaytmZindabad and #RBIshame. The attitudes towards Paytm range from support who perceive all this as the RBI favouring big banks (#ISupportPaytm) to those who are disappointed and don’t think they can switch to another app (#PaytmRocks, #RBIshocks).

The directives have made users emotional; some doubt the decision taken by RBI and appreciate Paytm’s positive impact (#PaytmFan, #RBIban).

Employee Impact & Response

The RBI directive significantly affects Paytm Payments Bank employees, making them doubt their jobs and feel disheartened and worried about the vision for their growth. The bank’s plan to direct its remote participation, albeit affecting around 1000 of its representatives, in both the employees on the rolls and the employees on contracts, resonates with the protracted cooperation with RBI. Employees lose the possibility of getting a regular high income and some benefits, and the bank could hurt its reputation, affecting the employees’ reputation in the banking industry.

Long-term operational restrictions may demoralize and demotivate them as the interest in participating wanes. The responses of the employees themselves vary from shock to support, with some believing that the bank has reached the bottom but will bounce back (#WeArePaytm, #WeWillBounceBack), those who are grateful for the work environment (#PaytmPaymentsBank, #ThankYouPPBL) and those who have loyalty to the organization (#PaytmPaymentsBank, #MyPPBLSt).

There have been massive implications for the bank and its investors following RBI’s action. On February 7th, 2024, Union Finance Minister Nirmal Sitharaman met with the Paytm CEO Vijay Shekhar Sharma. As per the assurance given by Sharma, Paytm will not layoff its employees. The company is also working with other banks on partnerships as well.

Nevertheless, Paytm has sacked over 1000 employees earlier and switched its business focus to reduce operations costs. The job cuts in Paytm, affecting at least 10% of its total workforce, come after the company backed out from small-ticket consumer lending and the BNPL (buy now pay later) segment.

Expert Opinions

Some finance specialists shared their insights anonymously. Here is what they said. An expert, a senior analyst based in a leading brokerage firm, defended the rationale for the RBI’s action. He said: “As a kind of offshoot legality, granting Paytm Payments Bank is also unfair as they have been violating the rules for a very long time now, and RBI imposed lavish leniency on them. But they have gone overboard, and RBI has to take harder action. The bank does not meet KYC, capital adequacy, cyber security norms, and audit requirements. Such serious oversights threaten the interests of the depositors and the public. Hence, the RBI guards them and ensures the stability and security of the banking system.”

Another opinion came from a fintech startup consultant who felt that RBI’s move was punitive and excessive compared to the bank’s mistakes. He said: “Paytm Payments Bank is an innovator in the fintech industry. It pioneered payment solutions for millions of customers. RBI is too harsh and will hurt the fintech sector’s development and innovation. While the bank has committed some imperfect actions, it’s important to note that not all are intentional or malicious. The vagueness and confusion surrounding the regulatory framework for fintech players, created by the regulator RBI, are often cited as contributing factors to startup exits. It should have allowed the bank more time and equipment to fill in the compliance gaps instead of resorting to such measures as imposition.”

A third expert, a professor of finance at a respected business school, emphasized that such a move served as a wake-up call for the fintech industry to improve governance and risk management. He opined: “This case highlights that Paytm Payments Bank should not have been considered a bank. The bank acted without proper oversight and neglected the critics and warnings from RBI, exposing its customers to various risks. The bomb dropped by the RBI is a signal to the fintech sector on what it needs to do to improve governance and risk management standards and abide by regulatory norms and standards. Extreme opportunities span the fintech field with an equally scalding cup of obstacles and responsibilities.”


RBI’s actions are milestones for the payments bank sector because of the several complications and questions that emerged from achieving various prospects and opportunities. Given the different views from industry experts about how strict the RBI’s actions are, we must ask: What’s the best way to follow the rules and to encourage new ideas in fintech?” It highlights increased partnership and collaboration between the regulator and the industry and the need for more innovativeness and competition within the market. The outcome entailing the impact of this action would depend on the way the stakeholders take up the responsibility of responding to adapting as well as shaping the bank industry of payments. It is not the end but rather the beginning of a new chapter.

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