What happens when the country's biggest bank, state-owned, and its largest mobile wallet firm, privately-owned and backed by Chinese investors, cannot co-exist?

India knows the answer.

Over the last one week, customers using the State Bank of India's (SBI) internet banking system have been disallowed from transferring money to their Paytm wallets.

Instead, SBI has been recommending them to use its own e-wallet — State Bank Buddy. At the time of writing this, the app had notched up 5 million downloads on Google Play Store.

Surprisingly, there was no public announcement of this decision. It was revealed matter-of-factly when a Twitter user complained of not being able to refill his Paytm wallet via an SBI account.

The bank's official handle responded thus.

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And some other users confirmed.

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This comes at a time when the mobile wallet landscape in India has heated up following the central government's ban on high-value currency notes that sucked out more than three-fourths of the cash in circulation almost overnight.

As a result, adoption of services like Paytm (backed by Chinese investor Alibaba), Mobikwik, Freecharge and others has grown by leaps and bounds.

SBI, the old incumbent of Indian banking, is feeling the heat from Paytm, especially because it has the millions of points-of-sale (PoS) in the country and is also on its way to becoming a payments bank.

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Also, SBI sees demonetization as an opportunity to push its own app, which some users have complained is not up to the mark.

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Indians have already started criticizing this move by the country's largest lender and are apprehensive that this could set a precedent for other banks as well.

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Some have even called for the intervention of the RBI, India's federal bank.

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We'll have to wait and watch what happens next.