RBI Slaps INR 5.39 Cr Penalty On Paytm Payments Bank For Violating KYC Norms

The Reserve Bank of India (RBI) on Thursday (October 12) imposed a penalty of INR 5.39 Cr on Paytm Payments Bank for non-compliance with Know Your Customer (KYC) norms. 

“The RBI has… imposed a monetary penalty of INR 5.39 Cr on Paytm Payments Bank Limited (the bank) for non-compliance with certain provisions of the ‘Reserve Bank of India (Know Your Customer (KYC)) Directions, 2016’…,” the central bank said. 

The fine was imposed after the central bank concluded that the payments bank also violated other norms related to cybersecurity, stringent monitoring of risk profiles of onboarded entities and regulatory ceiling of end of the day balance in certain customer accounts.

The RBI flagged six major issues with the payments bank:

• Failure to identify beneficial owner in respect of onboarded entities for providing payout services
• Failure to monitor payout transactions and carrying out risk profiling of entities availing payout services
• Breaching the regulatory ceiling of end of the day balance in certain customer advance accounts availing payout services
• Reporting a cyber security incident with delay
• Failure to implement device binding control measures related to ‘SMS delivery receipt check’ 
• The company’s video-based customer identification process (V-CIP) infrastructure failed to prevent connections from IP addresses outside India

Inc42 has reached out to Paytm for a comment on the development. The story will be updated on receiving a response from the company. 

The deficiencies in regulatory compliances came to fore after a special scrutiny of the Paytm Payments Bank was undertaken by the RBI to check adherence to KYC and anti-money laundering (AML) rules. As a result, an audit was conducted and a report was submitted which brought to spotlight non-compliance with the RBI’s directions.

Subsequently, the central bank sought Paytm Payments Bank’s response, submitted both in written format and orally, on the matter and a penalty amount was agreed upon by the RBI on the fintech major. 

“After considering the bank’s reply to the notice and oral submissions made during the personal hearing, RBI came to the conclusion that the charge of non-compliance with the aforesaid RBI directions was substantiated and warranted imposition of monetary penalty on the bank,” said the central bank. 

It is pertinent to note that the payments bank is already under the RBI’s radar and has been barred from onboarding new customers. It was not immediately clear whether the two cases are interlinked. 

In March last year, the RBI banned the payments bank from entertaining any new customers over ‘certain material supervisory concerns’. In its financial statements for the first quarter (Q1) of the financial year 2023-24 (FY24), the parent company, One97 Communications, said that it has already implemented the RBI’s various recommendations as part of an IT review undertaken in the previous fiscal year. 

The matter is still under consideration of the RBI. Interestingly, Paytm president and chief operating officer (COO) Bhavesh Gupta in July said that the payments bank was hopeful about the central bank lifting the restrictions by March 2024.

Despite the hiccup, Paytm Payments Bank has unveiled a slew of new offerings to retain its existing customers. 

Its parent company has also been posting healthy operational metrics and cutting down on losses. Paytm’s consolidated net loss declined 44.5% to INR 358.4 Cr in the quarter ended June 2023 from INR 645.4 Cr in the year-ago quarter. Alongside, revenue jumped 39% to INR 2,342 Cr in Q1 FY24 from INR 1,680 Cr in Q1 FY23. 

Set up in 2017, Paytm Payments Bank is one of the top payments banks in India, offering mobile banking platform and an ewallet services provider. In 2022, it emerged as one of the top mobile banking service providers in India and ranked sixth globally in terms of ewallet users.

Meanwhile, the fintech major’s shares closed 1.47% lower at INR 957.60 on the BSE on Thursday.