February 1, 2024

India Froze Paytm Bank after years of warnings about data flows

February 1, 2024

Size

Font

India’s banking regulator stunned the finance and tech industries by abruptly suspending much of digital giant Paytm’s business late Wednesday. But the surprise move came only after the watchdog had warned the fintech pioneer repeatedly in the past two years about questionable dealings between its popular payments app and its lesser-known banking arm.

A technical audit by the Reserve Bank of India found money and data traffic flows between the tightly regulated Paytm Payments Bank Ltd. and the rest of the Paytm universe that created accounting and supervisory problems, according to people familiar with the matter.

The regulator had warned Paytm about such issues before, but they remained unresolved, the people said, asking not to be identified because the matter isn’t public.

The action against Paytm Payments Bank followed years of non-compliance with central bank rules, including on customer due diligence, use of funds and technology infrastructure, the source said.

Paytm's stock fell to a six-week low of 609 rupees, erasing around $1.2 billion in value from the company also known as One 97 Communications. The stock ended down 20% in its biggest daily drop since listing in 2021.

The bank, which houses all of Paytm's 330 million wallet accounts, is important to the company's app and wallet eco-system, which could be hit if Paytm cannot find banking partners to replace its payments bank.

Paytm CEO Vijay Shekhar Sharma said on the analyst call the RBI action is a "speed bump", and that the company was working to develop partnerships with banks other than Paytm Payments Bank following the regulatory order.