How Paytm destroyed

Paytm begin it's  journey in 2010.But Initially, it was just a mobile recharging platform. 

An app through which you could recharge your phone and pay landline bills.The company gradually added more features to its app. 

In January 2014, Paytm wallet was launched with this  you could pay online using paytm.

By 2015,it was possible to pay for metro recharges, electricity, gas and water bills. 

But the real jump of company's popularity was seen after 8th November 2016.

That day when demonetisation happened. 

According to Euro Money's report, before demonetisation Paytm has 125 million customers. 

But only after 3 months of demonetisation, Paytm's had approx 185 million customers. 

The CEO of this company, Vijay Shekhar Sharma did not miss the opportunity to capitalise on this opportunity. Paytm hired more than 10,000 agents to distribute their QR codes to local shops and vendors. Shopkeeper were encouraged in every city to use paytm. 

In 2017, Paytm launched Paytm Payments Bank. 

Payments bank is like a bank to some extent, where you can create a bank account, deposit money and get a debit card. 

But compared to normal commercial bank,there are some important differences. 

Payments bank focus mostly on digital services. There are very few physical branches of payments bank.

 

And according to RBI's rule,Payment bank cannont offer credit card or loan services. 

Normal commercial banks like HDFC, SBI, ICICI do not have any deposit limit. You can deposit as much as you want in those banks. 

But RBI has prescribed a limit for payments banks, you cannot deposit more than  

Rs 200,000 in these banks. 

So on 31st January 2024,the Paytm crash happened because the RBI imposed operational restrictions on Paytm's payments bank. 

RBI said that Paytm's Payments bank kept violating our rules repeatedly. There was a 'persistent  non-compliance' by them, And that's why RBI put restrictions on the bank. 

After 29 February 2024 Paytm's Payments bank can't accept any deposits, there cannot be money top-ups in customer accounts, new customers cannot be on-boarded. 

And RBI said all the nodal accounts with this paytm payments bank should be closed by 15th march 2024. 

The truth is that Paytm was warned for many times  by RBI . 

In June 2018 , the first warning was issued by RBI to Paytm. 

An audit found that paytm was not following the anti-money laundering regulations properly. And the identity of the customers who made their accounts with their bank was not verified properly by Paytm.The KYC or know your customer compliance was not adhered by Paytm. 

So RBI told Paytm to stop onboarding new customers until it fixes all these issues. 

Paytm took some action regarding this warning because in January 2019,RBI allowed paytm to resume onboarding customers. 

The restrictions was removed. 

But after 2.5 years, in October 2021, came the big next shock. A fine of 10 million rupees was imposed on Paytm because while filling in their license application,they submitted incorrect information and documents. The issues that RBI had flaged before customers are not being verified properly, regulations are not being followed properly. Once again, customers onboarding is being stopped by RBI. 

In October 2023,another huge fine was imposed on Paytm this time it was amounted  to 50 million rupees. 

RBI hoped that after two warnings and two fines, Paytm would meet the regulatory requirements and start verifying it's customers properly. 

But even all of this, paytm didn't  take this seriously. And for this reason, on 31st January 2024 RBI had to take concrete steps. 

Since Paytm could not follow the rules and regulations properly, so RBI had to stop it's operation. 

RBI's  findings were very shocking, according to CNBC paytm allowed hundreds of thousands of customers to open bank accounts with them without proper KYC documentation. There were thousands of cases where thousands of customers had opened multiple accounts using the same PAN card. In some accounts, transaction were worth million of rupees. Here the risk potential money laundering was evident, it is possible that money laundering was taking place through paytm. RBI said that paytm's parent company,                                One97 communications Ltd. There is no operational segregation between it and Paytm Payments bank. There was cashflow between the two, which was not disclosed in the financial statements. 

So many rules and regulations were ignored.