Regulation Relief for Indian Fintech? RBI Reassures Industry After Paytm Action

RBI reassures Indian fintech after Paytm incident. Emphasizes self-regulation, and data privacy. Signals support for industry growth amid recent scrutiny.

Preeti Anand
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Fintech Regulations

 India's banking regulator has no plans to impose extreme penalties on the country's fintech sector, according to a top official, weeks after shocking investors by unexpectedly suspending much of the activities of  Paytm Payments Bank, founded by high-flying billionaire Vijay Shekhar Sharma.


The central bank would welcome self-regulation in the sector.

"No harsher measures are coming on fintech," P. Vasudevan, an executive director in charge of enforcement at the Reserve Bank of India, said on Friday. According to Vasudevan, the central bank would welcome self-regulation in the sector, but enterprises must adhere to data privacy standards. He stated that the supervisor intends to take a hands-off approach to fintech regulation.

 The comments of Vasudevan, a key official closely involved in developing India's payments space over the last decade, are reassuring, even as the regulator ramps up its actions against payments firms that violate the central bank's customer verification and data protection standards.


 Paytm, funded by SoftBank Group Corp, has been under government scrutiny.

Paytm, funded by SoftBank Group Corp., a fintech behemoth in India, has been under scrutiny by the government for some time, with repeated warnings over the last two years regarding improper dealings between its famous payments app and its lesser-known banking business. The RBI is considering revoking Paytm Payments Bank Ltd.'s license as early as next month, Bloomberg reported earlier this month.

 Restrictions by the Reserve Bank of India (RBI).


The Reserve Bank of India (RBI) imposed restrictions on Paytm Payments Bank in January 2024, citing "persistent non-compliance" with regulations. These restrictions included halting new customer onboarding, offering credit products, and accepting deposits exceeding a specific limit. Some feared this action might signal stricter rules for the entire fintech sector. However, a senior RBI official, P. Vasudevan, recently stated that no harsher measures are planned for the fintech industry. The RBI encourages self-regulation within the sector but expects strict adherence to data privacy rules.


Aside from imposing penalties on Paytm bank, the regulator created concern among payment service providers this week by instructing a significant card network to suspend some operations. The central bank said the card network could only offer a payment mechanism with authorization. RBI officials, including Governor Shaktikanta Das, stated earlier this month that the regulator supports the fintech industry and encourages companies to develop. This statement could relieve and reassure fintech companies operating in India. It emphasizes the importance of self-regulation and compliance with existing regulations. Focus on data privacy remains a crucial aspect for fintech companies to consider.