More than two years after barring Paytm Payments Bank from accepting deposits or top-ups, the Reserve Bank of India (RBI) Friday scrapped its banking licence with immediate effect. The central bank said the bank’s operations were conducted in a way that was “detrimental to the interest of the bank and its depositors.”Founded by One97 Communications and Vijay Shekhar Sharma, the payments bank will now be wound up, with the RBI set to approach the High Court for the process. Sharma held a 51% stake, while One97 Communications owned 49%.Payments banks in India are tightly restricted — they can accept deposits only up to Rs two lakh per customer and are not allowed to offer loans or credit cards.Under RBI scrutiny since 2018Paytm Payments Bank has been under regulatory scrutiny since 2018 owing to multiple compliance concerns. The central bank identified violations related to know-your-customer (KYC) norms — rules designed to verify customer identities and prevent financial fraud.One of the key issues flagged by the RBI was that the bank had linked a single Permanent Account Number (PAN) to multiple customer accounts. This raised serious red flags, as such practices can potentially be used to bypass regulatory safeguards. Additionally, the RBI observed that the bank was allowing transactions beyond the prescribed limits for certain accounts, which heightened concerns around possible money laundering risks.In June 2018, the RBI conducted an audit of the bank’s onboarding processes and found significant gaps in how new customers were being verified. The audit revealed that proper KYC procedures were not consistently followed during customer acquisition. As a result, Paytm Payments Bank was directed to halt the onboarding of new customers until it strengthened its compliance systems and addressed the identified deficiencies. These developments marked the beginning of sustained regulatory oversight, with the RBI closely monitoring the bank’s operations to ensure adherence to financial and compliance norms.RBI action over the yearsStory continues below this adEarlier, the bank was directed to stop onboarding new customers with effect from March 11, 2022. Thereafter, on January 31, 2024 and February 16, 2024, certain business restrictions were also imposed on the bank which disallowed any further deposits, credits or top-ups in existing customer accounts, prepaid instruments and wallets. On January 31, 2024, the RBI barred Paytm Payment Bank from accepting deposits or top- ups in any customer account, prepaid instruments, wallets, FASTags and NCMC card after February 29, 2024 in the wake of persistent non-compliances and material supervisory concerns. The RBI also imposed a penalty of Rs 5.39 crore on the bank in October 2023.The actions were taken due to non-compliance of various regulatory guidelines including those related to know-your-customer (KYC) and not maintaining a Chinese wall with the group company, One97 Communications. The RBI action against Paytm Payments Bank triggered a sharp but uneven impact on One97 Communications: its stock plunged 40–50% while its integrated payments ecosystem broke down, disrupting wallets, merchant settlements and services like FASTag and autopay. Paytm was forced to partner with banks such as Axis Bank and Yes Bank, migrate users and infrastructure and absorb higher compliance costs, leading to temporary user and merchant attrition to rivals like Google Pay and PhonePe, ultimately causing short-term disruption but a longer-term shift toward a leaner, partner-driven model.What RBI has said nowStory continues below this adThe RBI on Friday said the general character of the management of the bank is prejudicial to the interest of depositors as also the public interest. “Thus, the bank is not complying with provisions of Section 22 (3) (c) of the BR Act. No useful purpose or public interest would be served by allowing the bank to continue as envisaged in Section 22 (3) (e) of the BR Act,” the RBI said.Section 22(3)(c) of the Banking Regulation Act, 1949, stipulates that a banking license is granted or maintained only if the general character of a bank’s proposed or existing management is not prejudicial to the public interest or the interests of its depositors.The bank failed to comply with the conditions stipulated in the Payments Bank license issued to it, thereby violating the provisions of Section 22 (3)(g) of the BR Act, it said. Failure to comply with these conditions, particularly those crucial for protecting depositors, can lead to the cancellation of the license.The central bank said Paytm Payments Bank is now prohibited from conducting the business of ‘banking’ as defined in Section 5(b) or any additional business specified under Section 6 of the Banking Regulation Act, 1949 with immediate effect.