The Reserve Bank of India (RBI) is toughening its stance on its non-compliance rules for financial institutions following sanctions placed upon Paytm.
In a statement released yesterday, Shaktikanta Das, Governor of the RBI, stated that the central bank that whilst “all our actions, being a responsible regulator, are in the best interest of a systemic stability and protection of customers’ interest”, it has no shied away from warning firms like Paytm that failure to comply with regulations will mount to imposed sanctions.
This comes following the RBI barring Paytm’s Payments Bank from offering its banking services to customers last week after an audit into the company found “persistent” non-compliances with RBI regulations. RBI ordered Paytm Payments Bank to stop accepting new customers in 2022.
And more tougher sanctions may yet still be imposed on Paytm, with discussions within the RBI leading to possibly stripping the payments company of its banking licence, which could potentially lead to Paytm’s 330 million user base switching to another service.
As a result of the announcement of the sanctions imposed, Paytm shares declined by 10%. The company’s market cap stood at $3.4bn which is a far cry from the $20bn figure it was trading at back in 2021.
RBI Deputy Governor, Swaminathan Janakiraman, commented: “This is supervisory action for persistent non-compliance. Such action is invariably preceded by months and sometimes years of bilateral engagement where we point out the deficiencies but also give time to take corrective action. As a regulator, it is incumbent upon us to protect the consumer.
With the imposed sanctions set to take effect on Paytm by 29 February and although the Indian sector may find them stringent, Das noted yesterday that the RBI’s actions are “always proportionate to the gravity of the situation”.
RBI’s toughening stance on non-compliance within the Indian financial sector has led some to believe that harsher regulations and sanctions may stunt potential growth and add a dark cloud over business practices.
Whilst trepidation from the financial sector may arise from Paytm’s penalties, Das reaffirmed that the RBI will “encourage and support innovation and technology in the financial sector”.