Does The RBI Directive Impact Paytm App Too? Here's What Section 35 A of Banking Regulation Act Says

In an announcement made to the public, Paytm has said that the main Paytm app is working and will continue to work after February 29 as well. The company also said that the directive issued by the Reserve Bank of India (RBI) will affect only its associate bank and not the fintech company, as per a report by news agency ANI.

Paytm's founder and CEO, Vijay Shekhar Sharma, also posted about the functioning of the Paytm app and appreciated the support the company is getting.

"To every Paytmer, Your favourite app is working and will keep working beyond February 29 as usual. I, with every Paytm team member, salute you for your relentless support. For every challenge, there is a solution and we are sincerely committed to serving our nation in full compliance. India will keep winning global accolades in payment innovation and inclusion in financial services, with PaytmKaro as the biggest champion of it," he posted on X.

Message From Madhur Deora, President Paytm

Earlier on Thursday, Madhur Deora, President and Group CFO at Paytm, also clarified that Paytm and its associate bank are not and cannot be one.

"There may be this impression that Paytm and Paytm Payment Bank are one, but by design and by structure, they are not and cannot be. First, it is an associate company and second, it is not an associate company in the sense that it is some bank. And first and foremost for a bank is that it has to follow the governance that a bank is supposed to follow, which is to say that it has to have its own independent management team, which reports to the board and the matters that have to go to committees of the board where there can only be independent directors," he explained in an address to the analysts.

Future of Paytm As A Payments Company

Paytm, as a payments company, works with various banks (not just Paytm Payments Bank) on various payment products. The company has been working with other banks for the past two years and will now accelerate the plans and completely move to other bank partners.

The next phase of the company's journey is to continue to expand its payments and financial services business, only in partnerships with other banks. The fintech company, in an exchange filing, also stated that its associate bank is run independently by its management and board.

"We would take this opportunity to clarify that, as per banking regulations, Paytm Payments Bank Limited is run independently by its management and board. While OCL is allowed to have two board seats on the board of Paytm Payments Bank Limited, as a part of its shareholder agreement, OCL exerts no influence on the operations of Paytm Payments Bank Limited other than as a minority board member and minority shareholder," the company stated.

Section 35A of the Banking Regulation Act:

The Banking Regulation Act, legislated in 1949, comprises a set of rules that govern the banking sector in India. The popular act vests powers in the RBI to grant licenses to banks as well. It also serves as a banking regulator in India.

Notably, Section 35A of the Banking Regulation Act, 1949, gives power to the RBI to give directions to banks and can take action "to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company."

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