Paytm Fiasco: Securities Depository CDSL Begins KYC Review Of Paytm Money

As fintech major Paytm navigates the complexities of the Reserve Bank of India’s (RBI) recent action, securities depository Central Depository Services India (CDSL) has initiated customer verification inspection of Paytm Money, the wealth management entity operated by One 97 Communications.

Following the Reserve Bank of India’s directive issued on January 31, CDSL) has intensified its scrutiny of the know-your-customer (KYC) procedures employed by various entities under One 97 Communications, the parent entity of Paytm, ET reported.

CDSL and National Securities Depository (NSDL) regularly conduct audits of such platforms through their agencies. These audits aim to verify the implementation of systems for anti-money laundering and KYC compliance.

“Their KYC norms in this sector are more stringent than banking; in fact, every customer KYC is audited by a third party,” the founder of a broking startup said, as quoted in the report.

A senior executive from another stockbroking firm highlighted that investment platforms adhere more strictly to KYC regulations, with regular audits conducted on the user base. Violations in this domain result in penalties being imposed.

Paytm Money specialises in stock market and mutual fund investments. It stands out as a major player in the direct mutual funds’ space, offering schemes without the intervention of third-party distributors.

As per NSE data, Paytm Money has an active trading client base of 760,000. Moreover, the platform facilitates approximately 860,000 systematic investment plans (SIPs).

Paytm Money turned profitable in the financial year 2022-23 (FY23), posting a net profit of INR 42.8 Cr as against a loss of INR 10.7 Cr in the previous fiscal year, helped by steadily growing brokerage income.

Paym is going through a major crisis after the RBI barred Paytm Payments Bank from any deposits or credit transactions, or top-ups in any of its customer accounts last week. The central bank further said Paytm Payments Bank could also not provide any other banking services, such as UPI facility and fund transfers after February 29, 2024.

Following this, Paytm said it expects its annual EBITDA to take INR 300-500 Cr hit following the central bank’s action.

Paytm CEO Vijay Shekhar Sharma, along with other Paytm staff, reportedly met officials from the central bank on Monday to discuss the regulatory action.