The move follows an application put forward by PPSL to offer payment aggregator services for online merchants.
RBI has given Paytm a period of 120 days for submitting the fresh application.
The regulator also asked the firm to abide by two conditions while filing the new application, including seeking required approval for previous downward investment from Paytm into PPSL in line with foreign direct investment (FDI) guidelines.
Besides, the firm has been asked to halt the onboarding of new online merchants.
In an exchange filing, Paytm said that the move would have no material impact on its operations and profits as RBI direction applies only to the onboarding of new online traders.
The firm can keep onboarding new offline merchants and provide them with various payment services, such as all-in-one QR, soundbox, card machines, among others, added the firm.
Paytm said in a statement: “We are one of the biggest player in the online payments business in India.
“We are hopeful of receiving the necessary approvals in a timely manner and resubmitting the application.
“Our large existing clients base, from the biggest Indian e-commerce company to the largest ride hailing organisation – all of whom will remain unimpacted with this. We can continue to work with banks for payment gateway services.”
In August this year, PPSL forged an alliance with e-commerce platform Shopify to help merchants with their digital expansion.