Paytm Payments Bank Dropped From RBI's Scheduled Banks List as Licence Cancellation Takes Effect

The Reserve Bank of India (RBI) has formally removed Paytm Payments Bank Ltd (PPBL) from the country's list of scheduled banks, following the cancellation of its banking licence earlier this year.

In a statement issued on Wednesday, the central bank said: "Paytm Payments Bank Limited has been excluded from the Second Schedule to the Reserve Bank of India Act, 1934." A notification in this regard was issued on July 31 and published in the Gazette of India in September.

The Second Schedule to the RBI Act, 1934, is the official register of banks that meet the central bank's financial and prudential standards. Institutions included in it are known as scheduled banks and are entitled to certain operational privileges, including access to RBI facilities, membership of clearing houses and the ability to hold government balances. Removal from the schedule means an institution no longer carries that status.

The development follows the RBI's decision in April to cancel PPBL's banking licence. At the time, the central bank said the affairs of the bank were being conducted in a manner detrimental to the interests of its depositors, and cited non-compliance with regulatory norms. Subsequently, the Delhi High Court ordered that PPBL be wound up.

Regulatory scrutiny of the bank was not sudden. On March 11, 2022, the RBI directed PPBL to stop onboarding new customers, citing "material supervisory concerns". The bank was also asked to appoint an information technology audit firm to conduct a comprehensive system audit of its IT systems.

Further restrictions followed on January 31 and February 16, 2024. The RBI barred the bank from accepting any further deposits, credits or top-ups into existing customer accounts, prepaid instruments and wallets. These measures had already halted most of the bank's day-to-day operations well before the licence was cancelled.

PPBL is an associate entity of Paytm, the fintech company promoted by Vijay Shekhar Sharma. It operated under a payments bank licence, a category created in India on the recommendation of a committee headed by Nachiket Mor to extend basic banking services to small businesses and low-income households. Payments banks can accept deposits up to a prescribed ceiling and offer payment services, but cannot lend.

The removal from the Second Schedule is, in large part, a formal step that records the effect of the earlier decisions. Once a bank loses its licence and is ordered to be wound up, it cannot continue to function as a scheduled bank. The notification therefore reflects a change in the institution's legal status rather than imposing an additional penalty.

The sequence of actions has had direct consequences for customers who held accounts, wallets and prepaid instruments with PPBL. The 2024 restrictions meant no fresh deposits or top-ups were permitted, and users were directed to move their balances and linked services elsewhere. The RBI has, on earlier occasions, underlined that depositors' money in such cases remains protected under the applicable framework.

The case is among the more closely followed regulatory interventions in India's payments banking space, which was set up to widen financial inclusion. It also illustrates the RBI's stated position that compliance with prudential and customer-protection norms is a condition for retaining a banking licence and the privileges that come with scheduled status.

With the winding-up order in place, PPBL's operations are being closed in accordance with the court's directions, and its name no longer appears among the banks recognised under the Second Schedule of the RBI Act.