Winning Bizness Desk

Mumbai. The Reserve Bank of India has cancelled the banking licence of Paytm Payments Bank Limited, citing financial irregularities. The move has raised concerns among customers about the safety of their deposits. However, the central bank has made it clear that existing account holders can withdraw their money within a defined timeframe, as per regulatory guidelines. The system is designed to ensure that depositors are not left stranded even if a bank exits the business.

What payment banks are and how they function

Payment banks are small, digital-first banks that mainly operate through mobile platforms and are regulated by the RBI. They were introduced to expand financial inclusion, especially in underserved areas.

Key features of payment banks include:

• They do not offer loans or credit cards
• They focus on deposits, remittances and basic banking services
• Each customer can deposit up to ₹2 lakh

Unlike full-service banks such as State Bank of India or HDFC Bank, their operations are limited, which also shapes their risk profile.

How payment banks differ from regular lenders

The biggest difference lies in their business model. Payment banks cannot lend money, which means they do not earn through interest on loans. Instead, they rely on transaction fees and investments in safe government securities.

This creates a structure where:

• Risk exposure is lower compared to lending-heavy banks
• Revenue streams are narrower and more regulated
• Customer services remain basic and transaction-focused

Despite these limits, they remain an important part of India’s digital banking ecosystem.

Are deposits at payment banks safe?

Deposits in payment banks are protected under the Deposit Insurance and Credit Guarantee Corporation framework. This insurance applies if a bank fails or loses its licence.

Here is what depositors should know:

• Insurance cover is up to ₹5 lakh per customer per bank
• It includes both principal and interest amounts
• Covers savings, current accounts and fixed deposits

This means even in a worst-case scenario, most small depositors are fully protected.

What happens when a banking licence is cancelled

When the RBI cancels a licence, the bank is required to return depositors’ money within a set timeline. Customers can withdraw or transfer their funds without disruption.

In the current case:

• Paytm Payments Bank customers can withdraw their balances
• Services may be restricted, but funds remain accessible
• RBI monitors the process to ensure smooth settlement

This structured exit process is aimed at maintaining trust in the financial system. Customers who wish to close their accounts or stop using services can follow a simple process.

To close an account:

• Transfer your balance to another bank
• Raise a closure request through the app
• Verify the request and follow instructions
• Confirm closure to deactivate access credentials

To deactivate a debit card:

• Log in to mobile or internet banking
• Go to card management or service requests
• Select the block card option or call customer care

Market landscape and what lies ahead

Among payment banks, Airtel Payments Bank remains the market leader with a strong customer base as of April 2026. The segment continues to play a role in driving digital payments, even as regulatory scrutiny tightens.

For customers, the key takeaway is simple:

• Payment banks are regulated and monitored closely
• Deposits are insured up to a fixed limit
• Withdrawal mechanisms remain intact even during disruptions

While licence cancellations may create short-term concern, the safeguards in place ensure that depositor money remains largely secure.