Reserve Bank of India (RBI) on Friday directed Paytm Payments Bank to stop taking on new customers with immediate effect, citing ‘material supervisory concerns’ observed in the bank. 

The bank has also been directed to appoint an IT audit firm to conduct a comprehensive system audit of its IT system. This is the second regulatory action taken against the payments bank by the RBI. 

“Reserve Bank of India has today, in exercise of its powers, inter alia, under section 35A of the Banking Regulation Act, 1949, directed Paytm Payments Bank Ltd to stop, with immediate effect, onboarding of new customers,” the central bank said in a statement. 

“Onboarding of new customers by Paytm Payments Bank Ltd will be subject to specific permission to be granted by RBI after reviewing report of the IT auditors. This action is based on certain material supervisory concerns observed in the bank,” the statement added. 

Paytm Payments Bank was incorporated in August 2016 and formally began its operations in May 2017 from a branch in Noida. 

In August 2018, the RBI had said that the bank was flouting the know your customer norms. Later, in December 2018, The Times of India reported that the RBI was also not happy with the close relations between the payments bank and its parent One97 Communications Ltd. Based on the RBI's response to a Right to Information Act query, the newspaper reported that Paytm Payments Bank had failed to maintain the Rs 100 crore net worth requirement and was also flouting the Rs 1 lakh deposit limit permitted per account for payments banks at the time. 

Paytm has 100 million KYC customers and it is adding 0.4 million users every passing month. "We are also the largest issuer of FASTag with over eight million FASTag units issued," according to the Paytm website.

Paytm Payments Bank said it had been included in the Second Schedule to the Reserve Bank of India Act, 1934. This enabled it to explore new business opportunities, the company said in a press release in December 2021.

In December 2020, the RBI had also barred HDFC Bank from launching any new digital products or services and issuing new credit cards till the lender resolved recurring tech issues.