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Cutting Corners, Chasing Growth: Paytm’s Rendezvous with RBI

The latest measure by the central bank appears long due, given the fact that Vijay Shekhar Sharma chased growth despite multiple warnings

The Reserve Bank of India’s January 31 circular restricting Paytm Payments Bank Ltd (PPBL) from accepting any customer deposits, top-ups or credit transactions, took the nation by storm. That “Paytm Karo” was a country-wide adopted slogan for digital payments despite the fact that its competitors – PhonePe and Google Pay – accounted for a lion’s share in the UPI market, spoke about the impact the fintech giant had had on India’s digital payments revolution.

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For a company that brought QR code to the country even before NPCI - the payments regulator – introduced UPI payments for the first time, exponential growth did not come free of cost. When the demonetisation struck Indian households, Paytm presented itself as the knight in shining armour with tens of thousands of sales representatives on ground onboarding lakhs of merchants and small businesses, most of whom were unbanked until that point.

However, this meant cutting corners and chasing quick growth was the mantra for VSS who envisioned building a fintech empire with promotions stretching across the front pages of Indian dailies hailing the move by the Indian Prime Minister. And with exponential growth, followed close scrutiny from the RBI.

The latest measure by the central bank appears long due, given the fact that VSS chased growth despite multiple warnings.

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The first restriction by RBI came less than just a year after PPBL commenced operations, asking the payments bank to temporarily halt the opening of new accounts in June 2018 for non-compliance with KYC guidelines.

While this ban was rolled back in December 2018 when Shaktikanta Das took over the reins from Urjit Patel, PPBL was slapped with a fine of Rs 1 crore for violating provisions of the Payment and Settlement Systems Act in June 2021. It was then followed by another fine of Rs 5.39 crore in October 2023, for non-compliance relating to KYC norms, licensing guidelines and cyber security framework under the Banking Regulation Act.

It did not stop with fines and bans. The RBI also ordered for a comprehensive system audit by external auditors, which later revealed that PPBL was non-compliant on various fronts: from breach of the regulatory ceiling on end-of-day balance to delay in reporting cyber security incidents, among other issues.

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The latest regulatory snub, therefore, places VSS and his company’s future at a precarious situation where the central bank’s governor has vocally denied any signs of leniency and the possibility of reviewing its decision against PPBL.

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