The Reserve Bank of India (RBI) alerted the Directorate of Enforcement (ED) a few months ago about possible money laundering and know-your-customer (KYC) violations at Paytm, and the fintech services provider may lose its payments bank licence, given infringements flagged by the banking regulator over the past few years, people familiar with the matter told ET.
Additionally, the home ministry had alerted the Prime Minister’s Office about security concerns related to fund flows into and out of the entity with links to China, they said.
“Concerns have been flagged to ED… There was gross violation of anti-money laundering provisions and KYC norms,” said one of the persons aware of the details. “Several crores were being transferred in between multiple accounts without any KYC; lakhs of prepaid cards were issued sans any KYC, transferring large funds.” RBI had also uncovered data breaches, with information flowing between the payments bank and One 97 Communications.
In an order issued on January 31, RBI asked Paytm Payments Bank to stop all basic payment services through various platforms and technology railroads, including the Unified Payments Interface (UPI), Immediate Payment Service (IMPS), Aadhaar-Enabled Payment System (AEPS) as well as bill payment transactions, with effect from February 29.
The person said flouting of norms is very serious and the entity’s banking licence could be cancelled. Unlike in the case of cooperatives, RBI cannot directly supersede a payments bank, as that would require the government’s nod.
Appointing an administrator would also not solve the problem, people in the know said.
“Senior Paytm officials held a meeting with the regulator in January, in which they were told what to do. The action earlier this week was taken as a warning to the company to mend its ways. If things don’t change, then harsher action could be an option,” said another person, who did not wish to be identified.
RBI could not have delayed the action as it could have serious implications, the first person said.
Paytm did not reply to a late evening email seeking comment.
RBI also found KYC checks for hundreds of thousands of customers were missing, and some of the accounts were either owned by individuals with past issues with enforcement agencies or had abnormal balances, amounting to crores of rupees in some cases. The central bank has flagged multiple instances of a single permanent account number being used to open more than 1,000 accounts.
Source: Economic Times