Paytm Payments Bank: Continued regulatory lapses drew stringent RBI action

Sources say only 20 million of 330 million wallets may be operational and a single PAN may have been used for multiple customers [View in browser]( [See all newsletters]( 06 February 2024 Paytm Payments Bank: Continued regulatory lapses drew stringent RBI action [FILE PHOTO: The interface of Indian payments app Paytm is seen in front of its logo displayed in this illustration picture taken July 7, 2021.] As more details surface around the reasons for [Reserve Bank of India]( taking [stringent action against Paytm Payments Bank]( doubts thicken around the possibilities of the bank fudging its user base details and acting in a manner non-complaint to its licensing requirements. According to highly placed sources aware of the matter, while Paytm Payments Bank boasts of 330 million wallet users only 20 million may be active wallet users of the payments bank, while 310 million may have been redundant accounts. - Also read: [Paytm puts its wallet biz on the block]( bl exclusive Some of the case documents perused by businessline, which detail the irregularities noted by the regulator, reveal the absence of KYC (know your customer) for very large number of customers, permanent account number (PAN) validation failures in several accounts running into millions, single PAN used for onboarding multiple customers and an unusually high number of dormant accounts. Grave inadequacies The documents note that there are case where a same PAN is linked to 100s and 1000s of customers and value of transactions carried out through such inadequate PAN run into crores of rupees, far exceeding the minimum KYC pre-paid instruments limit permitted by regulations. In an email sent to the company, [Paytm]( did not comment on the above matter. “Irregularities such as these throw open the suspicion of money laundering,” said a highly placed source aware of the development, adding that based on past experiences cases where there have been high number of dormant accounts such accounts are likely to have been as mule accounts or accounts used for transacting on behalf of someone else and not the registered user. Comingling of biz operations Inter-corporate transfers between [One97 Communications Ltd]( and its associate company Paytm Payments Bank has also come under regulatory scrutiny. “In effect, One97 Communications is a business correspondent (BC) to Paytm Payments Bank. But One97 was charging fees unusually high for such BC transactions and an exorbitant royalty in addition to this for the bank to use Paytm brand name,” said another person familiar with matter. - Also read: [RBI order to have impact of ₹300-500 crore on annual operational profit: paytm]( There was significant co-mingling or inter-connectedness between the payments bank and One97 Communications’ financial and non-financial activities, which is also said to have resulted in regulatory discomfort over the bank’s business operations. According to licensing conditions for Paytm Payments Bank, it was required to maintain its own information technology infrastructure and have clear boundaries drawn between the operations of the bank and its parent company. “Despite several warnings and observations made by the regulator on this matter, there was a lot of dependence by the payments bank on its parent entity. Many transactions were routed through the parent entity owned apps,” said the person cited above giving rise to serious concerns on data privacy and data sharing. Glaring irregularities - Only 20 million may be active wallet users out of 330 million wallet user base stated by Paytm Payments Bank - Same PAN said to be linked to over 1000s of customers; value of such irregular KYC transactions breaching crores of rupees - Significant interconnectedness between the payments bank and One97 Communications’ financial and non-financial activities - Non-compliance payments banks basic licensing conditions including failure to set up separate IT setup for the bank You Might Also Like [Electronics industry veterans unite to form ‘Awesense Five’ for sensor manufacturing]( [Info-tech]( [Electronics industry veterans unite to form ‘Awesense Five’ for sensor manufacturing]( [TANGEDCO unbundling: Navigating complex financial restructuring challenges ahead]( [National]( [TANGEDCO unbundling: Navigating complex financial restructuring challenges ahead]( [Ahead of RBI deadline, most banks make AIF provisions in Q3]( [Money & Banking]( [Ahead of RBI deadline, most banks make AIF provisions in Q3]( [SEBI may enhance large-cap stocks categorisation]( [Markets]( [SEBI may enhance large-cap stocks categorisation]( Stay informed Subscribe to businessline to stay up-to-date with in-depth business news from India [arrow]( Copyright @ 2024, THG PUBLISHING PVT LTD. If you are facing any trouble in viewing this newsletter, please try [here]( Manage your newsletter subscription preferences [here]( If you do not wish to receive such emails go [here](