How years of warnings led to Paytm Payments Bank’s shutdown—and why its parent sees no impact

The Reserve Bank of India (RBI) on Friday cancelled the banking licence of Paytm Payments Bank Limited (PPBL) with immediate effect, citing serious regulatory lapses and concerns over depositor interest.

In an order dated April 24, the central bank said PPBL is prohibited from carrying out the business of banking with effect from the close of business on the same day.

The central bank said the bank’s affairs were conducted in a manner “detrimental” to the interests of depositors and that its management practices were “prejudicial” to public interest.

It also said the bank had failed to meet licensing conditions applicable to payments banks and that allowing it to continue operations would serve no useful public purpose.

The central bank said PPBL has adequate liquidity to repay all its depositors and that it will initiate proceedings for winding up of the bank before the competent High Court.

Where it started

The shutdown of Paytm Payments Bank Limited did not happen overnight.

The RBI had been raising concerns for years, and each step it took made the bank’s operations smaller, until there was little left to run.

The first clear warning came in March 2022.

The RBI told the bank to stop adding new customers. It also ordered a comprehensive “System Audit” of its IT system based on “certain material supervisory concerns observed in the bank.”

While existing users were not affected at that stage, it was amply clear the regulator was not satisfied with how the bank was being run.

Problem didn't go away

After looking at audit reports, the RBI, in January 2024, said the bank still had “persistent non-compliances”, which basically meant PPBL had not fixed the problems flagged earlier.

The payments bank was told it could no longer accept fresh deposits or add money to accounts, wallets or FASTags after February 29, 2024.

"We give sufficient time to every entity to comply and sometimes more than sufficient time to the entities for compliance. If they would comply, why would a regulator like us have to take action?" then RBI Governor Shaktikanta Das had said days after the regulatory crackdown.

Customers could still use or withdraw the money already in their accounts, but they could not add new funds. For many, this meant the account would slowly become unusable.

Extra time for customers

In February 2024, the RBI gave customers a bit more time to make alternative arrangements, pushing the deadline by a couple of weeks.

The bank was also directed to facilitate a seamless withdrawal of customer deposits parked with partner banks under the automatic ‘sweep-in sweep-out’ facility without causing any inconvenience to such customers.

This was mainly to help people move their money, salaries, subsidies and automatic payments to other banks without too much disruption.

The final step

On April 24, 2026, the RBI eventually cancelled the bank’s licence under the Banking Regulation Act, 1949.

It said the bank’s operations were not in the interest of depositors, pointed to governance issues, and said the bank had failed to follow rules despite repeated warnings.

“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,” it said.

Frequently Asked Questions (FAQs) on Paytm saga

The RBI will apply to the High Court to initiate winding up of the bank. Meanwhile, the bank’s board and shareholders have approved steps for voluntary winding up, subject to regulatory approval.

No. The RBI has stated that the bank has sufficient liquidity to repay all its deposit liabilities in full during the winding-up process.

No. The bank is prohibited from carrying out banking business, including deposits and related services, with immediate effect.

The bigger brand, run by One 97 Communications Limited, is not shutting down.

The company has said its app and services, including UPI payments, QR codes and payment devices, are working as usual because they are tied to other banks, not just Paytm Payments Bank.

One 97 Communications said its services will continue “without interruption” and there will be no material financial impact.

In a filing late on Friday, the company said it has no exposure to the payments bank and no material business arrangements with it. It added that the bank operates independently, with no overlap in board or management, and that its investment had already been fully impaired as of March 31, 2024.

Bernstein and Jefferies have reaffirmed their confidence in Paytm, stating the recent development around PPBL will have no impact on Paytm's business.

While Jefferies reiterated its 'Buy' rating on One 97 Communications Ltd, Bernstein maintained an 'Outperform' rating.

In its latest note, Bernstein said the regulator's decision to cancel the payments bank license is an incremental development, stating that Paytm had already created a clear separation between the payments bank and the parent company, especially after the regulatory action in early 2024.

"There is unlikely to be any impact on the company's (Paytm's) numbers as the operations of PPBL have been suspended for more than a year," Bernstein said in its note to investors.

The report noted that this development could potentially clear the path for the company to pursue alternative regulatory structures such as NBFC or PPI licenses, which could open avenues for Paytm to expand across payment products like wallets and credit solutions.

Jefferies expects Paytm to deliver a revenue compound annual growth rate (CAGR) of around 22% over FY26 to FY28, led by strong momentum in the financial services distribution business.

Jefferies added that Paytm's business model is entering a phase where scale-driven efficiencies are expected to drive margin expansion, supported by growth across both merchant payments and financial services offerings.