The decision by PPBL follows the Reserve Bank of India's move to cap withdrawals from Yes Bank accounts at Rs 50,000 per depositor for a month and imposed strict limits on operations at the country's fourth-largest private lender that faced "regular outflow of liquidity" after an effort to raise new capital failed.
"Paytm Payments Bank Ltd (PPBL) today (Friday) announced that they are restricting transaction settlements, including UPI, into Yes Bank accounts to safeguard their users' money," PPBL said in a statement.
Yes Bank has been seeking funding since last year to bolster its financial ratios and quell questions about its stability due to its exposure to the non-banking financial company sector entangled in a prolonged crunch in the local credit market.
"While third-party apps that rely on Yes Bank have also been affected, the UPI ecosystem has been designed in a way where customers can continue using other UPI apps to transact on UPI. Paytm customers continue to use Paytm UPI and wallet service without any interruption as before," the statement said.
The Indian banking system is currently under stress due to rising non-performing assets (NPAs) and other issues, it added.
The case of restrictions on Yes Bank is second within a year after the Punjab and Maharashtra Co-operative Bank crisis in September 2019.
Earlier in the day, PPBL took a dig on its rival PhonePe in the wake of obstruction it faced due to using cash-strapped Yes Bank's platform for transactions.
It said payments banks are not allowed to lend and, therefore, do not have the problem of NPAs. PPBL also added that such banks have to necessarily invest 75 per cent of customers' deposit money into government securities, which is the safest form of investment.
"Safety and security of our users' money are of utmost importance to us. We have stopped all transactions in Yes Bank accounts so that the money doesn't get blocked. We are also requesting users to change their primary bank account to some other bank. However, these restrictions are temporary in nature till the time we get more clarity on the situation," Satish Gupta, managing director and chief executive officer of PPBL, said.