The Reserve Bank of India (RBI) has demanded the closure of Paytm Payments Bank due to the company’s lack of compliance which led to a stock drop.
Businesses in the nation’s rapidly expanding financial technology sector should take note of the regulator’s order requiring Indian digital payments company to cease a significant portion of its operations by the end of this month, analysts say.
RBI has ordered Paytm’s bank to stop their ongoing operations as of February 29 due to the noncompliance of rules. Due to “persistent non-compliance” mentioned by RBI, a stock drop of the company took place. Many features of the company have since taken steps to rectify, especially their digital wallet.
Barnik Maitra, strategy consultant stated that “I think this signals that the RBI is going to just tighten oversight and scrutiny. There will be very little patience for players who are breaking laws and compliance norms which everyone in the industry, including larger players, are expected to adhere to.”
The FinTech sector in India has grown massively over the years. India ranks 3rd in the world today, having more than 9,000 FinTech start-ups.
The sector is projected to reach $70 billion in annual revenue by 2030 in the country, McKinsey India and Elevation Capital said in a report. It said that FinTech companies account for 70 per cent of digital payment transactions in India.
Day by day the industry is expanding, while the regulators are aiming to create balance regulation while allowing for growth and innovation in the sector. However, several companies have failed to meet the RBI guidelines, Mr. Maitra said.
“In general, the RBI has been tightening its stance towards FinTech, particularly when it comes to either lending or even taking deposits,” Maitra stated.
“The RBI is a conservative regulator. They are fine with allowing experimentation for a certain period of time within well-defined guardrails – but I think there will be a crackdown on repeat offenders.”
Great concern is being noted by FinTech companies, who’ve warned there will be negative consequences for the development of the sector if events keep moving in this manner.
“The recent RBI action against Paytm will prompt other companies in the FinTech sector to be more vigilant regarding regulatory directives and compliance,” mentioned Gaurav Goel, founder and director of Fynocrat Technologies, one of the FinTech start-ups in India.
In the case of Paytm, RBI has sent a notice to stop large portion of their operations in a few days, and the company has indicated it will comply with the rules and regulations of the central bank.
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