In an unprecedented move, the Reserve Bank of India has cancelled the banking licence issued to Paytm Payments Bank, saying the conduct of the Paytm founder Vijay Shekhar Sharma and the One97 Communications Ltd (OCL)-owned entity was detrimental to the interests of depositors.
The action was taken under Section 22(4) of the Banking Regulation Act, 1949 (‘BR Act’), effective from the close of business on April 24, 2026.
As a result, Paytm Payments Bank is prohibited from conducting the business of ‘banking’ under the law. RBI will make an application for winding up of the bank before the High Court.
Such a decision, a first in recent times, comes after the bank was not allowed to onboard new customers since 2022 and was barred from deposit or credit transactions two years ago.
“The affairs of the bank were conducted in a manner detrimental to the interest of the bank and its depositors,” RBI said in a statement. “The general character of the management of the bank is prejudicial to the interest of depositors as also the public interest,” it said.
Sources said the regulator had to take a decision one way or the other. The bank was not allowed to onboard customers and was neither allowed to undertake deposit or credit transactions. Under such circumstances, cancelling the licence was the only option.
An email sent to Paytm requesting comment on the regulatory action did not elicit a response till press time.
RBI further noted no useful purpose or public interest would be served by allowing the bank to continue, and that the entity failed to comply with the conditions stipulated in the payments bank licence issued to it.
Importantly, the regulator clarified that Paytm Payments Bank has enough liquidity to repay its entire deposit liability upon winding up of the bank.
The bank has customer deposits of Rs 1,395.22 crore across wallets and current and savings accounts, and total gift instruments of Rs 33.13 crore as on March 31, 2025.
In March 2022, Paytm Payments Bank was disallowed from onboarding new customers. Then, from February 29, 2024, the bank was barred from any deposit or credit transactions in any customer accounts. Withdrawal or utilisation of balances by its customers from their accounts, including savings bank accounts, was permitted without any restrictions, up to their available balance.
In February 2024, OCL withdrew its nominee from the Paytm Payments Bank board, and Vijay Shekhar Sharma stepped down as part-time non-executive chairman and board member. Veteran banker S Sridhar was appointed as non-executive chairman. At present, the Paytm Payments Bank board has six members, including MD & CEO Arun Kumar Bansal.
According to Paytm Payments Bank’s FY25 annual report, Vijay Shekhar Sharma has a 51 per cent stake, and One97 Communications—which is listed on the bourses—has a 49 per cent stake.
In the past, many banks were in trouble, but they were merged with other banks or were reconstructed, as was the case with Yes Bank in 2020.
In 2015, 11 payments banks received in-principle licences from RBI. However, only six banks are in operation now. Some entities decided to surrender licences even before starting operations. Of the six that are operational now, Fino Payments Bank received RBI’s in-principle approval to convert into a small finance bank.