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RBI prohibits Paytm Payments Bank from accepting deposits after February 29.

The Reserve Bank of India (RBI) has prohibited Paytm Payments Bank from accepting fresh deposits starting March 1, 2024.

The central bank said Paytm Payments Bank can no longer accept deposits in any new customer accounts after February 29. This includes prepaid payment instruments like digital wallets.

Why has RBI banned deposits for Paytm Payments Bank?

The RBI said its action against Paytm Payments comes after audits found “persistent non-compliances”.

External auditors submitted a system audit report and compliance validation report about Paytm Payments Bank. The reports revealed continued “material supervisory concerns” in the bank.

This prompted the RBI to take further supervisory action and ban Paytm Payments Bank from accepting fresh deposits after February 29.

What transactions are prohibited after February 29?

The RBI said no further deposits or top-ups will be allowed in Paytm Bank accounts after February 29.

This applies to all customer accounts, prepaid instruments, digital wallets, FASTags, NCMC cards, etc.

However, customers can continue to utilize existing balances in their Paytm Bank accounts. This includes savings accounts, current accounts, and prepaid instruments.

Paytm Payments Bank barred new customers in 2022

In March 2022, the RBI directed Paytm Payments Bank to immediately stop onboarding new customers.

So the bank has not been allowed to open new accounts for nearly a year already. The latest order prohibits deposits even in existing accounts.

This compounding regulatory action indicates major concerns remaining with Paytm Bank despite past interventions.

Why are payments banks under greater scrutiny?

Payments banks like Paytm Bank face stricter regulations because of their limited scope.

They can only accept deposits up to ₹1 lakh per customer. Payments banks also cannot lend money to customers like full-service banks.

Given these limitations, the RBI monitors them more closely to reduce financial system risks.

Can customers withdraw money from Paytm Payments Bank after February 29?

Yes, the RBI clarified that withdrawals or usage of balances by Paytm Bank customers will be allowed after February 29.

Customers can continue to freely utilize their available balances without restrictions.

So while fresh deposits are prohibited, existing funds can still be withdrawn or spent using Paytm Bank accounts and services.

Is the ban on Paytm Payments Bank permanent?

The RBI has not specified if the prohibition on deposits for Paytm Payments Bank is permanent or temporary.

For now, the directions apply until further notice. The ban will be reviewed based on future audit reports and the bank’s compliance record.

If Paytm Payments Bank can satisfy the RBI’s concerns, the restrictions may potentially be lifted.

Why are audits conducted on banks?

The RBI regularly conducts audits on all banks to assess their financial health, risk levels, and compliance.

These system audits help maintain the stability of the banking sector. The RBI takes action like prohibiting deposits if serious concerns emerge in audits.

External auditors also validate if banks have addressed issues raised in past RBI inspections. This provides independent verification.

How does the ban impact Paytm Payments Bank?

The deposit ban prevents Paytm Payments Bank from growing its user base and balances. So this will negatively impact its expansion plans.

It may have to shift focus to only servicing existing customers rather than acquiring new ones.

The prohibition also hurts the public confidence and reputation of Paytm Payments Bank. Addressing RBI’s concerns will be critical.

Regulatory action to protect consumers

The RBI’s stringent action indicates it prioritizes protecting consumer interests and mitigating risks.

Persistent non-compliance by Paytm Payments Bank led the central bank to ban deposits to limit further public harm.

Regulatory scrutiny and proactive interventions aim to keep the financial system robust for consumers.

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