Page 39 - Banking Finance March 2025

ARTICLE

raised concern over money-laundering. The banking
regulator found major irregularities in KYC, which exposed
the customers, depositors, and wallet holders to serious risk.
These include the absence of KYC for a very large number
of customers, PAN validation failures in lakhs of accounts,
and single PAN for multiple customers etc. The regulator
found that there was an unusually high number of dormant
accounts, which are prone to be misused as mule accounts.

During the audit and probe, the RBI also found that in
thousands of cases, the same PAN was linked to more than
100 customers and in some cases to more than 1,000
customers. Further it also found that the total value of
transactions, running into crores of rupees, was beyond
new momentum to digital payment, and it resulted regulatory limits in minimum KYC pre-paid instruments,
exponential rise in digital payment. The Paytm became one raising money-laundering concerns.
among the other to grab the opportunity and increase the
customer base. In FY 2018-19, Paytm payment bank Impact of RBI Directive to Paytm
registered Rs. 19 crore profit and became the first profitable Looking the irregularities & non-compliances revealed by
payment bank in India. There after in 2019-20 the Paytm external auditors and probe conducted by RBI, the regulator
registered its profit of 29.80 crore. With remarkable growth came heavily on Paytm and imposed various restrictions on
the Paytm became the most popular payment bank in India operations effective from February 29, 2024. Details are as
and subsequently In 2021, the Paytm awarded with the under:-
status of Schedule bank as recognised by RBI. Deposits and Credit Transactions: No further deposits,
credit transactions, or top-ups will be allowed in
However, In June 2018 the RBI barred Paytm Payment Bank customer accounts, prepaid instruments, wallets,
from opening new customer accounts, following an audit by FASTags, NCMC cards, etc. However, interest,
the RBI which made some observations about the process, cashbacks, and refunds may still be credited.
the company follows in acquiring new customers and its Withdrawal/Utilization: Customers can withdraw or
adherence to KYC norms. However, in January 2019, it
utilize balances from their accounts without restrictions,
received approval from the RBI to resume on-boarding new up to their available balance.
customers. In October 2021, RBI imposed a fine of Rs. 1
Other Services: No other banking services will be
crore on the Paytm bank for violating laws pertaining to
payments and settlement. Later on 11 March 2022, RBI provided by Paytm Payment Bank Limited.
prohibited Paytm Payment Bank Limited from on-boarding Nodal Accounts: The Nodal Accounts of One97
new customers owing to "certain material supervisory Communications Ltd and Paytm Payments Services Ltd
concerns observed in the bank". is terminated.
RBI Guidelines says
In continuation of these actions, and after the validation
report of the external auditors revealed persistent non- Section 35A of the Banking Regulation Act, 1949 empowers
compliances and continued material supervisory concerns in the Reserve Bank of India (RBI) to issue directions to banking
the bank, RBI ordered the bank to stop onboarding companies. These directions can be issued for various
customers and to not accept deposits engaging in credit reasons:
transactions or making top-ups in customer accounts after Public Interest: To Protect the interest of the public.
29 February 2024. Banking Policy: To safeguard banking policy.
Depositors' Interests: To prevent any banking
Major regulatory breaches company's affairs from being conducted in a manner

In the recent review RBI found noncompliance in KYC and detrimental to the interests of depositors.

BANKING FINANCE | MARCH | 2025 | 35