Paytm’s payments-to-lending shift tested as RBI removes bank status

The Reserve Bank of India has removed Paytm Payments Bank from its list of scheduled banks, formalizing the central bank’s April decision to cancel the bank’s licence for non-compliance. The move may limit its ability to participate in certain banking activities, including offering savings accounts or issuing new wallets.

Inc42 reported earlier this month that Paytm had built its lending business as a second engine to offset slowing growth in its core payments franchise. The company’s shift—from digital wallet pioneer to a dual payments-and-credit platform—reportedly relied on the payments bank’s licence to support its operations. Without that licence, Paytm could face challenges in managing customer funds and transaction flows efficiently.

When we covered the RBI’s April action, the central bank cited persistent violations of know-your-customer rules and data-localization requirements. The latest delisting suggests regulators view the problems as structural rather than procedural. The loss of scheduled-bank status might also affect how Paytm is perceived by institutional lenders and credit bureaus, which often consider such status in their assessments.

The story raises an open question for India’s fintech sector: whether the country’s regulatory framework can accommodate hybrid models that straddle payments and lending. Razorpay’s engineering head highlighted a similar tension in September, arguing that infrastructure gaps outside a company’s control demand redundant systems and contingency planning. Paytm’s experience suggests those gaps now extend beyond technology and into compliance.

Sources: inc42.com