Over two-and-a-half years after placing debilitating restrictions on Paytm Payment Banks, which effectively shut down Paytm’s various services including prepaid payment instruments (PPIs) like digital wallets, the Reserve Bank of India (RBI) on Friday (November 13) granted in-principle authorisation to Paytm Payments Services Ltd (PPSL) to set up and operate a payment system for issuing and operating PPIs in India.While a final approval from the central bank is still awaited, the development paves the way for Paytm — once the poster boy of India’s fintech revolution — to again offer its once popular wallet services and other prepaid instruments. Before its wallet services — then housed under Paytm Payments Bank — were effectively suspended, Paytm had become India’s largest digital wallet provider. If the in-principle approval from RBI culminates into a final authorisation, Paytm wallet and other prepaid instruments will be back, this time under PPSL.In April this year, the RBI scrapped Paytm Payments Bank’s banking licence, over two years after barring it from offering all its core services, which included accepting deposits or top-ups in any customer account, prepaid instruments, wallets, FASTags, National Common Mobility Card (NCMC), etc. While cancelling the license, 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.”Paytm had transferred its prepaid instruments business to Paytm Payments Bank in 2017 due to RBI guidelines governing payments banks and prepaid payment instrument issuers. The norms required Paytm to restructure its digital payments ecosystem and migrate mobile wallet users into the RBI-licensed payments bank.Even as it was certain that the Paytm Payments Bank’s license was going to be scrapped, PPSL — a wholly-owned arm of Paytm parent One 97 Communications — had applied in December 2025 for setting up a payment system for issuance and operation of prepaid payment instruments, shows the RBI’s in-principle authorisation, which was shared by One 97 Communications with the stock exchanges on Friday. The company’s share rose on the development, closing 1.1% higher at Rs 1,945 apiece on the BSE.What does the RBI’s in-principle approval for Paytm say?The RBI’s in-principle approval does not allow PPSL to immediately commence wallet operations. The company can issue prepaid payment instruments, including wallets, only after receiving final authorisation or a Certificate of Authorisation from the central bank.The RBI has laid down certain conditions that PPSL must fulfil before securing final approval. It has advised the company to undertake a system audit, including a cyber security audit, through an auditor empanelled with CERT-In or a qualified information systems auditor.Story continues below this adFrom the archive | Trouble in a wallet: What’s behind the Paytm stormThe audit must cover the requirements specified under the RBI’s Master Directions on Cyber Resilience and Digital Payment Security Controls for non-bank Payment System Operators, dated November 5, 2026. The company has also been asked to ensure compliance with the RBI’s April 6, 2018, circular on storage of payment system data.The RBI has stipulated a six-month deadline from the date of its letter for submission of the system audit report. Failure to submit the report within this period will result in the in-principle authorisation automatically lapsing. In such a situation, the central bank will not consider granting final authorisation thereafter.The RBI has further advised PPSL that any change in the company’s shareholding or ownership should be guided by its July 4, 2022, directions on obtaining prior approval in cases involving the takeover or acquisition of control of non-bank payment system operators, and the sale or transfer of payment system activities. RBI actions against Paytm (2018-2024)Paytm Payments Bank was under regulatory scrutiny since 2018 due to various compliance-related 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.Story continues below this adThis 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.The bank was directed to stop onboarding new customers with effect from March 11, 2022. 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 had 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, One 97 Communications.Story continues below this adThe RBI action against Paytm Payments Bank triggered a sharp but uneven impact on One 97 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.Scrapping of Paytm Payments Bank licenseWhile scrapping the Paytm Payments Bank’s license in April this year, the RBI said that 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.Story continues below this adThe central bank said Paytm Payments Bank was 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.