RBI likely to issue clarification on Paytm services: Financial services secretary.
The Reserve Bank of India (RBI) may issue some clarification in the Paytm case looking its huge user base and reach across the country, financial services secretary Vivek Joshi said on Tuesday. Last week, the RBI issued curbs on Paytm Payments Bank (Paytm PB) and said no deposit, credit transactions or top-ups will be allowed in any customer accounts, prepaid instruments, wallets, FASTags, etc. after February 29.
The banking regulator has asked Paytm PB to settle all pipeline transactions and nodal accounts by March 15, 2024, and said no further transactions should be permitted thereafter.
Speaking about the current issue, Joshi said the central bank had taken the present step in the interest of consumer protection.
“The company (Paytm) to my understanding did not comply with the regulator’s requirements,” Joshi told the Economic Times and added: “I cannot comment on a particular entity. Regulator is looking at it. RBI has taken action in the interest of consumer protection.”
Earlier in the day, it was reported that the RBI may consider either cancelling the licence of Paytm PB or superseding its board after the settlement of all pipeline transactions and nodal accounts are completed by March 15. RBI has already issued directions to Paytm PB under Section 35A of the Banking Regulation Act, 1949.
The payments bank has been found in violation of several norms, including know your customer (KYC) guidelines, which prompted the regulator to order the lender to stop deposits or credit transactions after February 29, 2024.
On February 6, Paytm CEO Vijay Shekhar Sharma met with Finance Minister Nirmala Sitharaman. Prior to this meeting, other Paytm executives met top representatives from the Reserve Bank of India.
“Given the provisions of the Banking Regulation Act that have been used in this case, it is only logical that the board will be superseded or the licence will be cancelled. It is a matter of time,” a source quoted in the report said.
One of the reasons for the RBI action on Paytm PB was non-compliance with several norms for an extended period. It was found that KYC compliance was not done in a large number of accounts running into lakhs, PAN validation failures, and, importantly, there were thousands of cases where a single PAN was linked to over 100 customers. In some cases more than thousand customers were linked to one PAN.
Another key concern of the regulator with Paytm PB was it was not maintaining arm’s length with the promoter, OCL. RBI noted that Paytm PB’s financial and non-financial business was interlinked with its promoter group companies, which was in violation of licensing conditions.
In the course of their thorough verification procedures, RBI and independent auditors found that there were discrepancies in the compliance documentation submitted by Paytm PB. The findings indicated inaccuracy implying non-compliance. The RBI has reportedly shared its findings with the Enforcement Directorate, the Ministry of Home Affairs and the Prime Minister’s Office.
In March 2022, RBI issued a restriction preventing Paytm PB from accepting new client registrations. The company was simultaneously instructed to enlist an independent auditor for the evaluation of its information technology systems.
Notably, it was observed by the central bank that there were consistent instances where regulatory compliance issues existed to such an extent that necessitated further strict supervisory action against Paytm PB.
Paytm PB is partially controlled by One97 Communications Ltd, where it holds 49 per cent. Sharma owns the remaining majority stake of 51 per cent.