Paytm gets RBI’s nod to revive wallet business

1. At a Glance

• One97 Communications, the parent of Paytm Payments Services Ltd., has received in-principle approval from the RBI to operate Prepaid Payment Instruments (PPIs). This could bring back its wallet business. [1]
• PPIs let users store money in advance in digital wallets. The balance can be used to buy goods and services, transfer funds and send remittances. [1]
• The wallet had been hit by the RBI's 2024 action against Paytm Payments Bank Ltd. (PPBL) under Section 35A of the Banking Regulation Act, 1949. [2]
• UPSC value: this case covers fintech regulation, the RBI's supervisory powers, the Payment and Settlement Systems Act, 2007, and the trade-off between digital-payments growth and compliance and KYC.

2. Why in the News

• 13 November 2026 (Friday): One97 Communications said it had received in-principle RBI approval to operate PPIs. [1]
• In Q1 of FY27, the company had disclosed that it had applied for a full-fledged PPI licence. [1]
• Final authorisation will come only after it meets the conditions the RBI has set. [1]

3. Background & Evolution

• 2017: The RBI issued the Reserve Bank of India (Issuance and Operation of Prepaid Payment Instruments) Directions, 2017. They applied to all entities approved or authorised to run payment systems that issue PPIs. [6]
• 2021: The RBI issued the Master Directions on Prepaid Payment Instruments, 2021. [7]
• 31 January 2024: The RBI acted against PPBL under Section 35A of the BR Act, 1949. No further deposits, credits or top-ups were allowed in customer accounts, prepaid instruments, wallets, FASTags, etc. after 29 February 2024. [2]
• The clampdown was reported to follow persistent non-compliance by PPBL. [3]
• Paytm said it expected a hit of up to $60 million from the RBI action on its payments bank. [4]
• Deadline extension: The cut-off for the restrictions was pushed to 15 March 2024. [2]
• 27 December 2024: The RBI's PPI Master Directions were last updated, issued afresh to bring in recent changes to the PPI guidelines. [7]
• 13 November 2026: One97 received in-principle approval for PPI issuance. [1]

4. Core Static Facts

Item	Fact
What a PPI is	An instrument that stores value in advance and is used for purchases, fund transfers and remittances [1]
Regulator	Reserve Bank of India [1][7]
Parent statute for PPIs	Payment and Settlement Systems Act, 2007 [7]
Legal basis of the PPI Master Directions	Section 18 read with Section 10(2) of the PSS Act, 2007 [7]
Licensing rule	No entity may set up or operate a PPI payment system without prior RBI approval or authorisation [7]
PPI categories (2017 Directions)	Closed system, semi-closed system and open system PPIs [6]
Provision used against PPBL	Section 35A, Banking Regulation Act, 1949 [2]
Licensing stages	In-principle approval, then meeting the conditions, then final authorisation [1]
Entities in the news	One97 Communications (parent); Paytm Payments Services Ltd. (subsidiary); Paytm Payments Bank Ltd. (the bank that faced RBI action) [1][2]

5. Multi-Dimensional Analysis

Legal / Constitutional

• There are two separate legal tracks. Banking activity falls under the BR Act, 1949 (Section 35A). Payment systems fall under the PSS Act, 2007 (Sections 10(2) and 18). [2][7]
• A wallet is a payment system product that needs PSS Act authorisation. It does not need a banking licence. That is why a separate PPI licence path was open to One97. [7][1]

Economic

• PPIs are a key channel for small digital payments and remittances. [1]
• Regulatory action had real financial costs. Paytm estimated a hit of up to $60 million from the 2024 action. [4]

Ethical / Governance

• The 2024 action was reported to follow persistent non-compliance. It signalled that the RBI will apply graded, enforceable penalties even to large fintechs. [3]
• A two-stage licence (in-principle approval, then final authorisation) lets the regulator test compliance capacity before granting full permission. [1]

Administrative / Regulatory

• Prior authorisation is mandatory for PPI issuers, and the RBI is the gatekeeper. [7]
• The RBI keeps its PPI rules current: the 2017 Directions, the 2021 Master Directions and the December 2024 update. [6][7]

Social

• Wallets serve users who may lack full bank access, such as small merchants and remittance senders. [1]
• Sudden restrictions on deposits, top-ups and FASTag reloads show the consumer-protection risk when one dominant platform is penalised. [2]

6. Recent Developments (last 12–18 months)

• 27 December 2024: The PPI Master Directions were updated. [7]
• April 2026 (unverified): Secondary media reported that the RBI cancelled PPBL's banking licence. This could not be confirmed from any whitelisted source, so verify it on rbi.org.in before relying on it.
• Q1 FY27: One97 disclosed its application for a full PPI licence. [1]
• 13 November 2026: One97 received in-principle RBI approval to operate PPIs. Final authorisation depends on meeting the RBI's conditions. [1]

7. Prelims Hooks

• PPIs are regulated under the Payment and Settlement Systems Act, 2007, not the Banking Regulation Act. [7]
• The PPI Master Directions are issued under Section 18 read with Section 10(2) of the PSS Act, 2007. [7]
• No entity can operate a PPI system without prior RBI authorisation. [7]
• The 2017 PPI Directions sorted PPIs into closed, semi-closed and open systems. [6]
• The RBI issued Master Directions on PPIs in 2021. [7]
• The PPI Master Directions were last updated on 27 December 2024. [7]
• The RBI acted against Paytm Payments Bank under Section 35A, BR Act, 1949. [2]
• After 29 February 2024, PPBL could take no deposits, top-ups or credits in accounts, wallets or FASTags. [2]
• The PPBL deadline was later extended to 15 March 2024. [2]
• One97 Communications is the parent of Paytm Payments Services Ltd. [1]
• One97 has in-principle approval, not final authorisation, for PPIs (November 2026). [1]
• PPIs can be used for purchases, fund transfers and remittances. [1]

8. What the RBI Was Actually Worried About in 2024

• The problem was KYC, not technology
• KYC (Know Your Customer) means checking who the real owner of an account is.

• Business Standard reported that many PPBL accounts had no proper KYC. It also reported that thousands of PANs were each linked to a large number of customers [8].

• Why one PAN with many accounts is dangerous

• Wallet and account limits are set per customer.
• If one person can open many accounts under one PAN, they can move far more money than the limits allow, and nobody can easily tell who owns it.

• That is how money laundering (making illegal money look legal) gets hidden inside a normal payments app.

• Dormant accounts can become mule accounts

• The same report said PPBL had a high number of dormant (unused) accounts that could be used as mule accounts [8].

• A mule account is one that a criminal borrows or buys to pass stolen or illegal money through, so the money cannot be traced back to them.

• The RBI moved step by step before the big action

• PPBL had already been barred from taking on new customers in March 2022 [9].
• The full curb on deposits, top-ups and wallets came only in January 2024, for 'persistent non-compliance' [2][3].
• So the RBI first gave a smaller warning, and acted harder only when the problems continued.

9. Should a Group That Broke the Rules Get a New Wallet Licence?

• The strongest case against the approval
• The bank that failed on KYC (PPBL) and the firm now getting the PPI nod (Paytm Payments Services Ltd.) belong to the same parent, One97 [1][2].
• The same management culture may sit behind both. A new company name does not by itself prove that compliance has improved.

• If the RBI lets a group come back through a different subsidiary, other fintechs may think a penalty is only a temporary pause.

• The answer to that case

• The 2024 action was aimed at the bank, under the BR Act. The wallet licence is a separate test under the PSS Act [2][7].
• The approval is only in-principle. Final authorisation comes only after One97 meets the RBI's conditions [1]. So the RBI still holds the power to say no.

• A permanent ban on the whole group would also hurt users and small merchants who depend on its other services. It would also leave fewer players in a market UPI already dominates [10].

• What the critics get right

• A licence check on one company cannot see problems that move between companies in the same group.
• So the real test is whether the RBI checks the KYC systems and the people running them at the group level, not just the paperwork of the new entity.

10. Why the Wallet Is Worth Less Than It Was in 2017

• UPI has taken over small payments
• In January–June 2025, UPI made up about 85% of all digital payment transactions by number [10].
• PPIs made up only about 3.2% by number, and about 0.1% by value [10].

• So Paytm is returning to a much smaller business than the one it lost.

• The wallet now survives by plugging into UPI

• Since December 2024, holders of full-KYC PPIs can make and receive UPI payments through third-party UPI apps [11].
• The PPI issuer must link its full-KYC wallets to its UPI handle (the UPI address of the wallet) [11].

• Full-KYC means the user's identity is fully checked, not just a phone number.

• This makes KYC the price of staying in business

• A wallet with weak KYC cannot use these UPI links, so it is stuck in a shrinking corner of the market.
• In other words, the same KYC weakness that caused the 2024 curbs now decides whether the revived wallet has any business value at all.

11. What the RBI Should Check Before Final Authorisation

• RBI: test KYC with live data, not only written policies
• The 2024 failure was about actual accounts — many without KYC and many linked to the same PAN [8].

• So before final authorisation, the RBI should check sample accounts for one-PAN-many-accounts patterns, not just read compliance manuals.

• RBI: keep the step-by-step approach it used with PPBL

• With PPBL, the RBI first stopped new customers in 2022, then stopped deposits and top-ups in 2024 [9][2].

• The same ladder can be built into the new licence: limited customer numbers first, full scale only after clean audits.

• RBI: tie UPI access to proven full-KYC

• The December 2024 circular already limits UPI linking to full-KYC wallets [11].

• Supervisors should check that minimum-KYC wallets (wallets opened with only basic details) cannot get UPI access through a back door.

• RBI: protect users if things go wrong again

• In 2024, users lost the ability to top up wallets and FASTags with only a few weeks' notice [2].
• The licence conditions should require a clear plan to let users move or withdraw their money if the wallet is curbed.

12. Anchors for Answers

• Data: UPI was about 85% of digital payment transactions by number in H1 2025; PPIs were about 3.2% by number and about 0.1% by value [10]
• Data: Paytm estimated a hit of up to $60 million from the 2024 RBI action [4]
• Report/Committee: RBI Payment System Report, June 2025 [10]
• Law/Case: Section 35A, Banking Regulation Act, 1949 (action against PPBL) [2]; Sections 10(2) and 18, Payment and Settlement Systems Act, 2007 (PPI Master Directions) [7]; RBI circular RBI/2024-25/97, 27 December 2024 (UPI access for full-KYC PPIs via third-party apps) [11]
• Scheme: UPI interoperability for full-KYC wallets, which ties a wallet's usefulness to strong KYC [11]

13. Mains Relevance

• GS-III: Indian Economy, covering mobilisation of resources, banking, the financial sector, fintech and digital payments.
• GS-II: Statutory and regulatory bodies (RBI); government policies and interventions.
• GS-IV (case-study angle): Corporate governance, compliance culture, and regulator ethics in balancing innovation against risk.
• Question stems: 1. Discuss the regulatory framework for Prepaid Payment Instruments in India. How does the RBI balance fintech innovation with consumer protection and KYC compliance? 2. The Paytm Payments Bank episode highlights the risks of concentration in India's digital payments ecosystem. Critically examine. 3. Distinguish between the RBI's powers under the Banking Regulation Act, 1949 and the Payment and Settlement Systems Act, 2007, with recent examples.

14. Related Topics to Study Next

• Payments Banks and Small Finance Banks: PPBL was a differentiated bank, so learn the licensing rules and the limits on such banks.
• Payment and Settlement Systems Act, 2007: the legal base for PPIs, UPI, card networks and payment aggregators.
• Payment Aggregators / Payment Gateways regulation: Paytm Payments Services Ltd. works in this space.
• UPI and the NPCI's role: wallet versus UPI interoperability and market-share caps.
• FASTag and NETC: wallet and FASTag reloads were directly affected by the 2024 action.
• KYC and AML norms (PMLA, 2002): the compliance basis behind fintech enforcement.
• Section 35A, BR Act: the RBI's power to issue directions to banks.
• RBI Ombudsman / Integrated Ombudsman Scheme: grievance redress for digital-payment users.

15. NCERT Concepts to Revise

• Prepaid payment instruments (Economy): The article's core subject: wallets and prepaid instruments that One97 is now approved to operate.
• Payments bank (Economy): Paytm Payments Bank was the entity hit by RBI action; it differs from the wallet business.
• Payment system (Economy): PPIs are regulated as payment systems under the PSS Act, separate from banking law.
• Digital payments (Economy): Wallets are a digital-payments channel; the case weighs growth against compliance.
• Fintech (Economy): Paytm is a large fintech, and the case shows how the RBI regulates such firms.
• Know Your Customer (Economy): KYC compliance lapses are central to the RBI's action and to PPI rules.
• FASTag (Economy): FASTag reloads were among the services blocked by the 2024 restrictions on Paytm Payments Bank.
• Consumer protection (Economy): Sudden curbs on wallets and top-ups raise risks for users, which the RBI must weigh.
• Remittances (Economy): PPIs can be used to send remittances, one of their key uses.
• Unified Payments Interface (Economy): UPI competes and interoperates with wallets in India's digital-payments market.
• Corporate governance (Economy): Persistent non-compliance by PPBL is a governance and compliance-culture case study.
• Deposits (Economy): The 2024 curbs barred new deposits and top-ups in PPBL accounts and wallets.
• Ombudsman (Polity): The RBI ombudsman scheme handles complaints from digital-payment users.

16. Common Errors / Trap Areas

• Wrong Act: PPIs come under the PSS Act, 2007. The PPBL action was under the BR Act, 1949 (Section 35A). [2][7]
• Wrong entity: The RBI action was against Paytm Payments Bank Ltd. The new approval went to One97 / Paytm Payments Services Ltd. These are different entities. [1][2]
• In-principle approval is not a licence: One97 still needs final authorisation after meeting the RBI's conditions. [1]
• Category confusion: The closed, semi-closed and open split comes from the 2017 Directions. [6] Later Master Directions (2021 and after) changed the classification, so check the current text before answering.
• Date trap: The original cut-off was 29 February 2024, extended to 15 March 2024. [2]