What happened on Paytm Payments Bank for KYC violations and money laundering

Paytm Payments Bank

New Delhi: The Reserve Bank of India (RBI) has taken stern action against Paytm Payments Bank Ltd (PPBL), a subsidiary of the popular digital wallet Paytm, for violating the Know Your Customer (KYC) norms and facilitating money laundering. The RBI has directed PPBL to stop accepting deposits or top-ups in customer accounts, wallets, FASTags, and other instruments after February 29, 2024. The RBI has also ordered PPBL to halt most of its business activities, including taking further deposits, conducting credit transactions, and carrying out top-ups on any customer accounts, prepaid instruments, wallets, and cards for paying road tolls after February 29.

Why it matters

The RBI’s action against PPBL is a result of a long-standing investigation into the questionable dealings of hundreds of crores of rupees between the digital wallet Paytm and its banking arm. According to a report by news agency PTI, PPBL had lakhs of non-KYC-compliant accounts and in thousands of cases, single Permanent Account Numbers (PANs) were used for opening multiple accounts. These accounts were used for transferring large amounts of money, much beyond the regulatory limits in minimum KYC pre-paid instruments, raising money laundering concerns. PPBL also had about 31 crore dormant accounts, which were prone to have been used as mule accounts for illegal transactions.

How it was uncovered

The RBI had detected serious KYC and anti-money laundering (AML) violations by PPBL in 2021 and had directed the bank to address these deficiencies. However, the bank failed to comply and submitted incomplete and false information on many occasions. Accordingly, in March 2022, the RBI imposed supervisory restrictions on PPBL to stop onboarding new customers with immediate effect and to appoint an external audit firm to conduct a comprehensive system audit. The RBI also conducted regular inspections and audits of PPBL and its parent entity One97 Communications Ltd (OCL), which runs the Paytm platform.

What action was taken

The RBI’s latest action against PPBL is a culmination of its investigation and supervision of the bank. The RBI has issued a show-cause notice to PPBL and its directors, asking them to explain why the bank’s license should not be canceled. The RBI has also asked PPBL to submit a detailed plan of action to rectify the KYC and AML violations and to ensure the safety and security of the customers’ funds. The RBI has also warned PPBL of further action, including monetary penalties and prosecution if the bank fails to comply with the directions.

What the customers need to know

The RBI’s action against PPBL will affect the customers who have accounts, wallets, FASTags, and other instruments with the bank. The customers can access their existing deposits and pay for services with money stored in their wallets till February 29, 2024. However, after that date, they will not be able to top-up their wallets or use them for transactions, unless the RBI lifts the restrictions. The customers will also not be able to open new accounts or deposit money with PPBL. The customers are advised to contact the bank’s customer care for any queries or grievances.

What the PPBL said

PPBL has issued a statement, saying that it is cooperating with the RBI and is working to resolve the issues. PPBL has also denied any involvement in money laundering and said that neither the bank nor its founder-CEO Vijay Shekhar Sharma has been the subject matter of investigation by the Enforcement Directorate (ED) regarding money laundering. PPBL has claimed that occasionally, some merchants on its platforms have been the subject of inquiries, and the company has cooperated fully with the authorities in such instances. PPBL has also assured its customers that their money is safe and secure with the bank.