SUMMARY
Joshi highlighted a recurrent pattern of Paytm’s non-diligent adherence to Know Your Customer (KYC) protocols, prompting regulatory intervention by the RBI
This development is not exclusive to Paytm Payments Bank but serves as a wake-up call for all payment banks to promptly enhance their compliance and regulatory adherence, Joshi highlighted
This comes hours after the RBI barred Paytm Payments Bank from any deposits, credit transactions, or top-ups in any of its customer accounts
Former Reserve Bank of India’s executive director Deepali Pant Joshi said that with its ban on Paytm Payments Bank, the central bank has made it clear that ‘cowboy style action’ won’t work.
Joshi’s comment comes a day after the RBI has barred Paytm Payments Bank from any deposits or credit transactions, or top-ups in any of its customer accounts.
She pointed out a recurring pattern where Paytm did not diligently follow know your customer (KYC) protocols. This has prompted regulatory intervention by the RBI.
“Despite receiving multiple warnings, Paytm has failed to take responsibility for these lapses. This development is not exclusive to Paytm Payments Bank but serves as a wake-up call for all payment banks to promptly enhance their compliance and regulatory adherence,” Joshi told CNBC.
She added that Paytm Payments Bank has been a disaster in the making since October 2023.
The central bank in a statement on January 31, said, “No further deposits or credit transactions or top-ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards (National Common Mobility Cards), etc. after February 29, 2024, other than any interest, cashbacks, or refunds which may be credited anytime.”
Under Section 35A of the Banking Regulation Act, 1949, the RBI said that the Nodal Accounts of One97 Communications Ltd and Paytm Payments Services Ltd. are to be terminated at the earliest, in any case by February 29, 2024.
The regulator has taken the step after Paytm Payments Bank’s “persistent non-compliance and continued material supervisory concerns”.
Paytm Payments Bank, associated with One 97 Communications Limited (OCL), is taking immediate steps to comply with RBI’s directions. OCL, a payments company, works with various banks, not just Paytm Payments Bank, on various payment products.
In an exchange filing on February 1, Paytm said that its wholly-owned banking subsidiary “is taking immediate steps to comply with RBI directions, including working with the regulator to address their concerns as quickly as possible.”
In response to the directive to terminate the nodal account of OCL and Paytm Payments Services Limited (PPSL) by February 29, 2024, both entities will transition the nodal account to alternative banks within this timeframe.
Meanwhile, brokerage firm Jefferies has downgraded the payment aggregator to ‘underperform’ from a ‘buy’ call and reduced the target price for the stock by more than half to INR 500 from INR 1,050.
Jefferies’ new target price reflects a downside potential of over 34% for the Paytm stock.
Paytm Payment Bank’s Frequent Run-Ins With The RBI
This is not the first time Paytm Payments Bank has come into RBI’s crosshairs. According to the January 31 RBI press note, the action comes after Paytm Payments Bank’s “persistent non-compliance and continued material supervisory concerns”.
In October last year, the central bank slapped the listed fintech giant’s subsidiary with an INR 5.39 Cr penalty for non-compliance with know-your-customer (KYC) norms.
At the time, the RBI also flagged six major issues with the payments bank, including failure to identify beneficial owners in respect of onboarded entities for providing payout services, the failure to monitor payout transactions and carry out risk profiling of entities availing payout services, and failure to report cybersecurity incidents without delay.
In March 2022, the RBI directed Paytm Payments Bank to stop onboarding new customers, a restriction which is still ongoing. While the payments bank expressed hope in September 2023 that the restrictions might be lifted in March 2024, the latest RBI action might have thrown a spanner in the works on that front.
