Paytm Payments Bank is under intense scrutiny from the RBI and the Enforcement Directorate.
Hundreds of accounts created on Paytm Payments Bank without proper identification were one of the major reasons for the Reserve Bank of India to impose stringent curbs on the company, people familiar with the matter said. These accounts with inadequate Know-Your-Customer (KYC) conducted transactions worth crores of rupees on the platform, leading to fears of potential money laundering.
More than 1,000 users were found to have linked the same Permanent Account Number (PAN) to their accounts. The compliance submitted by the bank was found to be incorrect during verification processes conducted by both the RBI and auditors.
RBI is concerned that some of the accounts could have been used for money laundering, sources said. As well as informing the Enforcement Directorate, the RBI has sent its findings to the ministry of home affairs and the prime minister's office.
The Enforcement Directorate will probe Paytm Payments Bank if any evidence of illegal activity is found, Revenue Secretary Sanjay Malhotra told Reuters.
There were also reports of non-disclosure of major transactions within the group and associated parties, further intensifying regulatory worries. The central bank's scrutiny also unearthed loopholes in the governance standards, particularly in the linkage between Paytm Payments Bank and its parent company, One97 Communications Ltd.
Transactions routed through the parent app of Paytm raised data privacy concerns, leading to the RBI's decision to halt transactions through Paytm Payments Bank. While user deposits in savings accounts, wallets, FASTags, and NCMC accounts are not immediately affected, the company will have to rely on third-party banks for its operations until February 29.
Following the RBI's notice, Paytm stock experienced a sharp decline, plummeting 36% over two days and wiping $2 billion off its market value.
Paytm founder Vijay Shekhar Sharma dismissed the regulatory actions as a "speed bump" during a conference call with analysts, aiming to reassure stakeholders amid the ongoing turbulence.