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Enforcement Directorate could probe Paytm Payment Bank over violations

The Reserve Bank of India (RBI) has expressed concerns over potential money laundering and lapses in Know Your Customer (KYC) procedures by Paytm Payments Bank. The regulatory scrutiny follows multiple violations

Enforcement Directorate could probe Paytm Payment Bank over violations
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First Published Feb 4, 2024, 3:59 PM IST

The Reserve Bank of India (RBI) has raised serious concerns over potential money laundering and lapses related to Know Your Customer (KYC) procedures by Paytm Payments Bank. The regulatory scrutiny comes in the wake of multiple violations, including instances of using the same Permanent Account Number (PAN) on multiple occasions, inadequate KYC procedures, and permitting transfers without proper verification. 

As a consequence of these issues persisting over several years, the RBI has taken a significant step to bar Paytm Payments Bank from accepting fresh deposits starting in March. Despite discussions over the past two years, the management of the payments bank reportedly failed to address these concerns.

In addition to restricting the acceptance of fresh deposits, the RBI has referred the matter to the Enforcement Directorate for a thorough investigation. Sanjay Malhotra, the Revenue Secretary, has stated that if there are any fresh charges of money laundering against Paytm by the RBI, they will be investigated by the Directorate of Enforcement in accordance with the law.

Paytm Payments Bank has maintained that the RBI's directive issued on January 31 is part of an ongoing supervisory engagement and compliance process, and it has complied with supervisory instructions. 

However, the regulatory concerns go beyond procedural issues. Hundreds of accounts created on Paytm Payments Bank without proper identification have raised red flags. These accounts, which reportedly conducted transactions worth crores of rupees, lacked sufficient KYC measures, prompting fears of potential money laundering.

Notably, more than 1,000 users were found to have linked the same PAN to their accounts. The compliance submitted by the bank was discovered to be incorrect during verification processes conducted by both the RBI and auditors. The RBI is particularly concerned that some of these accounts could have been used for money laundering activities.

Apart from informing the Enforcement Directorate, the RBI has shared its findings with the Ministry of Home Affairs and the Prime Minister's Office. Reports have also surfaced regarding the non-disclosure of major transactions within the group and associated parties, adding to regulatory worries. 

The central bank's scrutiny has revealed governance standards loopholes, especially in the linkage between Paytm Payments Bank and its parent company, One97 Communications Ltd.

The regulatory actions have taken a toll on Paytm's market performance. Following the RBI's notice, Paytm's stock witnessed a sharp decline, plummeting 36% over two days and wiping $2 billion off its market value. This development underscores the growing emphasis on regulatory compliance and adherence to robust financial standards within India's rapidly evolving fintech landscape.

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