The Reserve Bank of India (RBI ) has cancelled the banking licence of Paytm Payments Bank Ltd, ending a long regulatory unwind that began with restrictions on new customer onboarding in 2022 and tightened sharply in 2024. The central bank said the bank’s affairs were conducted in a manner “detrimental” to the interests of the bank, its depositors and the public interest, and it will now seek a high court order to begin winding up the bank. The RBI’s latest action was the final step in a multi-year escalation, culminating in the cancellation of Paytm Payments Bank’s licence.
- 2018–2022: Early supervisory concerns emerge.
- 2022: Ban on onboarding new customers.
- 2024: Restrictions on deposits and operations.
- 2026: Full Paytm Payments Bank licence cancellation.
What went wrong?
As per RBI, the bank’s affairs were conducted in a manner “detrimental” to the interests of the bank and its depositors, that the general character of management was “prejudicial” to depositors and public interest, that no useful public purpose would be served by letting the bank continue, and that Paytm Payments Bank had failed to comply with the conditions of its payments bank licence.
The licence cancellation came more than two years after the regulator first imposed business curbs over violations, including lapses in customer due diligence. RBI’s earlier action cited non-compliance with customer due diligence, fund use, and technology infrastructure.
Behind the cancellation of Paytm Payments Bank licence, the major concern was also around the Know Your Customer (KYC) processes.
- Gaps in customer verification.
- Weak controls on onboarding.
- Potential exposure to financial misuse.
Regulatory sources have pointed to deficiencies in due diligence and compliance systems; in February 2024, RBI officials described the clampdown as the result of persistent non-compliance, the regulator had given the bank enough time to correct the problems. RBI had found hundreds of thousands of accounts created without proper identification, with some linked to the same identification proof and showing unusually high activity or dormancy.
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The compliance problem
As per the RBI’s explanation, Paytm Payments Bank
- Failed to meet banking licence conditions.
- Ignored earlier warnings.
- Inadequate corrective action.
According to the RBI, the regulator had flagged issues multiple times, but compliance gaps persisted. The issue was a pattern of supervisory concerns: customer due diligence gaps, weak identification controls, technology infrastructure weaknesses and questions around how the bank’s operations.
These concerns were serious enough for the Reserve Bank of India to order the bank in January 2024 to stop accepting fresh deposits. And on 15 March 2024, it restricted credits, top-ups, wallet loading, and other inflows. The 2024 restriction was already a major blow for the Payments Bank.
Actually, the 2024 action began the practical shutdown long before the formal licence cancellation.
A short history of the Paytm Payments Bank
Paytm Payments Bank began operations in May 2017 after the RBI issued it a licence under Section 22(1) of the Banking Regulation Act. RBI’s 2017 note also said Vijay Shekhar Sharma was among the applicants approved in principle for a payments bank in 2015. Paytm Payments Bank was limited by design: it can accept small deposits but cannot lend like a full-service bank.
Paytm Payments Bank held deposits worth ₹13.95 billion as of March 2025 and reported a net loss of ₹946.4 million, despite a capital adequacy ratio well above the requirement.
[Related Reads: Paytm Collaborates with Clix Finance to Offer Instant Digital Loans ]
What the cancellation means now
The latest RBI action ends the bank’s ability to continue as a banking entity, and it sets up a winding-up process through the high court. One 97 Communications will no longer be able to hold any deposit-taking businesses through the bank, while Paytm said the cancellation would not have a material financial impact on its wider operations because the banking arm functions separately.
For customers and merchants, the practical impact had already been built into the 2024 restrictions by the RBI. Now, Paytm’s licence cancellation mainly formalizes the end-state of a process that started with onboarding freezes, then moved to deposit restrictions, and now ends with the bank’s licence being revoked.
What it means for India’s fintech sector
This is the first such licence cancellation against a specialised lender, and it comes at a time when UPI has made payments easier and raised the bar for controls on accounts, identification, and transaction monitoring.
[Also Read: India becomes the 4th-highest funded fintech startup ecosystem globally ]
Fintech firms can grow quickly, but once a regulated banking entity is involved, the standards are closer to those of a bank than to those of a consumer app.
