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RBI Enhances Paytm UPI Support, Imposes Bank Restrictions

The Reserve Bank of India (RBI) has taken additional steps to facilitate the seamless operation of Paytm's UPI platform. This comes in the wake of restrictions imposed on Paytm Payments Bank, designed to ensure the stability of the Paytm app. Let's delve into the key developments and understand how these measures impact Paytm users and the broader digital payments landscape.
Paytm

Review of One97 Communication Ltd.’s Application:

RBI has instructed the National Payments Corporation of India (NPCI) to review One97 Communication Ltd.’s application to serve as a Third-Party Application Provider (TPAP) for the UPI platform. This move is aimed at sustaining the functionality of the Paytm app and ensuring a smooth transition for users.

Restrictions on Paytm Payments Bank:

Effective March 15, 2024, Paytm Payments Bank faces restrictions on accepting further deposits. A directive issued on January 31 mandated a halt in transactions after February 29. This has prompted One97 Communications to shift Paytm’s nodal account to Axis Bank, ensuring the continued operation of essential features beyond the stipulated date.
Restrictions on Paytm Payments Bank
RBI issues tweet regarding Paytm.

Additional Steps Under Section 35A:

Under Section 35A of the Banking Regulation Act, 1949, RBI has introduced further measures:
  • Migration of ‘@paytm’ Handles: Pending NPCI approval, '@paytm' handles will seamlessly migrate to new banks, preventing disruptions. No new users will be added until the migration is successfully completed.
  • Certification of PSP Banks: The National Payments Corporation of India (NPCI) will accredit 4-5 banks as Payment Service Provider (PSP) Banks to manage high-volume UPI transactions, in line with risk mitigation standards.
  • Merchant Settlement Accounts: One97 Communication Ltd. is set to establish settlement accounts with Payment Service Provider (PSP) Banks exclusively for merchants utilizing PayTM QR Codes.

Clarifications and Recommendations:

  • Migration for ‘Paytm’ Users Only: Only individuals and businesses possessing UPI handles linked to '@Paytm' are required to take necessary actions. Those without such handles will experience no impact from these developments.
  • Alternative Arrangements: Customers with accounts/wallets at Paytm Payments Bank are advised to arrange alternatives with other banks before March 15, 2024, as per RBI’s FAQs released on February 16, 2024.
  • FASTag and NCMC Holders: Holders of FASTag and National Common Mobility Cards (NCMC) issued by Paytm Payments Bank should make alternative arrangements before March 15, 2024, to avoid inconvenience.

Verdict:

Yogesh Dayal, Chief General Manager at RBI, emphasizes that these measures aim to safeguard customers and the payment system from potential disruptions. Importantly, they do not impact any ongoing regulatory actions against Paytm Payments Bank. As users navigate through these changes, it becomes crucial to stay informed and take necessary actions to ensure a smooth transition in the evolving digital payments landscape.