RBI imposes curbs on Paytm Payments Bank due to inadequate KYC

One of the major reasons that the Reserve Bank of India imposed stringent curbs on Paytm Payments Bank on Jan. 31 is reportedly due to inadequate Know-Your-Customer procedures which led to transactions worth crores of rupees. Material lapses in the conduct of the payments bank has resulted in supervisory concerns from the RBI. Over 1,000 users were found to have linked the same PAN to their accounts.       

RBI is concerned that some of the accounts could have been used for money laundering. As well as informing the Enforcement Directorate, the RBI has sent its findings to the ministry of home affairs and the prime minister's office.

The Enforcement Directorate will probe Paytm Payments Bank if any evidence of illegal activity is found, Revenue Secretary Sanjay Malhotra.

 There were also reports of non-disclosure of major transactions within the group and associated parties, further intensifying regulatory worries. The central bank's scrutiny also unearthed loopholes in the governance standards, particularly in the linkage between Paytm Payments Bank and its parent company, One97 Communications Ltd.

Transactions routed through the parent app of Paytm raised data privacy concerns, leading to the RBI's decision to halt transactions through Paytm Payments Bank. While user deposits in savings accounts, wallets, FASTags, and NCMC accounts are not immediately affected, the company will have to rely on third-party banks for its operations until February 29.

Following the RBI's notice, Paytm stock experienced a sharp decline, plummeting 36% over two days and wiping $2 billion off its market value.