Explained: Why has RBI pulled up Paytm Bank and why its share prices have fallen?

There’s trouble brewing for Paytm Payments Bank, which processes digital transactions for the digital payment giant Paytm. The Reserve Bank of India (RBI) on 11 March barred Paytm Payments Bank from taking on new customers. Where has Paytm erred?During its annual inspections, the RBI found that the company’s servers shared information with China-based entities, who indirectly own a stake in the Paytm Payments Bank, reports Bloomberg news agency. According to the report, the bank had allowed data to flow to servers overseas, which violates Indian rules. It has also been alleged that the bank did not verify its customers properly.On Friday, the RBI had not only instructed Paytm to stop enrollment of new clients but also ordered an audit for its IT systems, saying that “certain material supervisory concerns” were observed in the bank.Paytm rubbishes allegationsPaytm has denied sharing any information with foreign servers.“The recent Bloomberg report on Paytm Payments Bank claiming data leak to Chinese firms is completely false and simply sensationalising. Paytm Payments Bank is proud to be a completely homegrown bank and is fully compliant with RBI’s directions on data localisation. All of the Bank’s data resides within the country,” a Paytm Payments Bank spokesperson said.“We are true believers of the Digital India initiative, and remain committed to driving financial inclusion in the country," the statement added.Paytm shares plummetAfter the report was picked up by other media channels, shares of One97 Communications Ltd, the parent firm of Paytm, tumbled nearly 13 per cent on Monday, reports news agency PTI.The stock tanked 14.52 per cent to Rs 662.25, the lowest since its listing, during the day on the Bombay Stock Exchange. It finally settled at Rs 675.35, lower by 12.84 per cent.On the National Stock Exchange, it tumbled 12.21 per cent to settle at Rs 680.40. The company's market valuation also plunged by Rs 6,429.92 crore to Rs 43,798.08 crore on BSE, according to the PTI report.Third-time guilty?Paytm Payments Bank is facing action for the third time from the RBI since it was founded in May 2017. This is the second time it has been stopped from opening new accounts."The Reserve Bank of India has, in exercise of its powers, inter alia, under section 35A of the Banking Regulation Act, 1949, directed Paytm Payments Bank Ltd to stop, with immediate effect, on-boarding of new customers," the central bank said in a statement.The RBI said that it would allow new customers to be enrolled after reviewing the auditor’s report. "On-boarding of new customers by Paytm Payments Bank Ltd will be subject to specific permission to be granted by RBI after reviewing reports of the IT auditors. This action is based on certain material supervisory concerns observed in the bank," it said.Paytm founder arrestedThere was more trouble for the company over the weekend when reports emerged that Paytm founder and chief executive officer Vijay Shekhar Sharma was arrested and released on bail last month after being booked for negligent driving under IPC Section 279.According to an FIR filed in the case, a Jaguar Land Rover, allegedly driven by Sharma, had rammed into a vehicle of DCP (south district) Benita Mary Jaiker outside The Mother’s International School on Aurobindo Marg in New Delhi. The incident took place on 22 February and a complaint was filed by Dipak Kumar, a constable posted as the DCP’s driver.Sharma holds 51 per cent stake in Paytm Payments Bank while the remaining 49 per cent is held by Paytm.Paytm got listed in November 2021 and was the country’s biggest-ever initial public offerings. It has tumbled 68.58 per cent from its issue price of Rs 2,150.With inputs from agenciesRead all the Latest News, Trending News, Cricket News, Bollywood News,India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.