RBI restricts key services and bans new deposits over money laundering concerns and KYC lapses
The Reserve Bank of India (RBI) has issued a stern warning to Paytm Payments Bank, indicating the potential loss of its license amidst grave concerns over multiple violations, primarily related to Know Your Customer (KYC) protocols. The regulatory body’s findings suggest widespread instances of alleged KYC breaches within Paytm Payments Bank, raising red flags for potential money laundering activities.
In an official directive issued on January 31, the RBI has ordered Paytm Payments Bank to cease all basic payment services across various platforms and technological channels, effective from February 29. This mandate encompasses a halt on services such as Unified Payments Interface (UPI), Immediate Payment Service (IMPS), Aadhaar-Enabled Payment System (AEPS), and bill payment transactions.
The RBI’s investigation uncovered significant lapses in KYC verification processes, with hundreds of thousands of customer accounts found to be devoid of proper checks. Additionally, concerns have been raised regarding the ownership of certain accounts, with some linked to individuals with prior enforcement issues or displaying abnormal balances, reaching crores of rupees in some instances. Notably, the central bank has identified numerous instances where a single permanent account number was used to open more than 1,000 accounts, indicating potential systemic flaws in Paytm Payments Bank’s operations.
This latest regulatory action marks the third instance of intervention against Paytm Payments Bank. In 2018, the RBI had directed the payments bank to halt customer onboarding due to deficiencies in its KYC procedures, a ban that was subsequently lifted in January 2019.
Furthermore, the RBI has instructed Paytm Payments Bank to discontinue accepting fresh deposits into its accounts or popular wallets starting from March. Post February 29, the bank will be prohibited from offering services such as fund transfers, bill payments, or UPI facilities, effectively restricting users from conducting any financial transactions through Paytm Payments Bank.
The developments highlight the escalating regulatory scrutiny faced by Paytm Payments Bank, which commenced operations in 2017 amid the backdrop of post-demonetisation dynamics. With the threat of losing its license looming large, Paytm Payments Bank finds itself at a critical juncture, grappling with the fallout from compliance failures and regulatory censure.
