A two-year-old ticking time bomb: What went wrong for Paytm & Vijay Shekhar Sharma

The Reserve Bank of India has barred Paytm Payments Bank from offering all forms of banking services, which includes accepting deposits and processing of payments. Unlike Yes Bank or others, this directive was not an outcome of bad finances but a two-year-old problem in making. 

A Bloomberg report says the fintech's problems started two years back when the watchdog raised flags over dealings between the firm's payments app and its banking arm. An RBI audit reportedly flagged concerns on the money and data traffic flows between Paytm Payments Bank and Paytm but they, the report said, remained unresolved.

Paytm sat on the warnings

As Paytm sat on the warnings, RBI became increasingly concerned about management overlap between the bank and Paytm. They saw the same set of top officers and decision-makers acting on behalf of the bank and the broader fintech company, creating potential conflicts of interest, the Bloomberg report said. 

Lender partners may relook ties

“The bigger issue is Paytm has not been on the good books of the regulator and going forward, their lending partners also could possibly re-look at the relationships,” Macquarie analysts said in a note. The Bloomberg report adds that Paytm can appeal to the RBI that passed the order and later to the central bank’s board. IT also can seek legal action through courts. But RBI is reportedly clear it "doesn’t want Paytm to operate a payments bank anymore".

Paytm said it was taking urgent steps to comply with the RBI’s order and was working with the banking regulator to assuage concerns as early as possible.

If you use Paytm, how worried should you be?

Customers can accept or receive funds in the app until February 29. Post this date, customers can only withdraw or transfer funds from his Paytm wallet or Paytm Payments Bank account until the available balance is exhausted. No fresh deposits or top-ups into the bank account or wallet will be allowed after the deadline since Paytm has been barred from offering services like fund transfers through AEPS (Aadhar Enabled Payment System), IMPS (Immediate Payment Service), and UPI (Unified Payments Interface).

In a post on X on Friday morning, Vijay Shekhar Sharma said Paytm's app will "keep working beyond 29 February as usual."

Okay, what about Fastag, NCMC cards the bank gave and what about my Paytm app?

Topup or fresh credits into these accounts will be barred from March 1. Paytm app is not impacted. You can still use it without any restriction. 

Also read: Paytm will keep working beyond Feb 29: Vijay Shekhar Sharma allays user fear
 

Should merchants using QRs linked to Paytm be worried?

Payments Bank will have to migrate to new bank partners. Paytm Payments Bank is 49% owned by Paytm, also known as One 97 Communications. The remaining 51% is held by Paytm Chief Executive and founder Vijay Shekhar Sharma. The bank houses all of the parent's 330 million wallet accounts, according to Macquarie Capital, meaning money held in them is deposited with the payments bank.