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.
Also read | Paytm in talks to migrate payments, settlements from Paytm Payments Bank
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.
Discover the stories of your interest
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.
Security agencies are looking at the possibility of the entity being used as a front to launder money.
“The RBI action was because the company could not cure certain defects despite the earlier regulatory action in March 2022,” said the second person cited earlier.
Also read | ETtech Explainer: how will RBI move impact customers
In March 2022, the regulator had barred the Noida-based company from onboarding new customers and directed it to appoint an external auditor.
In 2022, an RBI inspection found that many of the compliance reports that the payments bank was submitting were not in line with requirements and, in some cases, there were outright false claims.
The banking regulator also allegedly found violations of the Prevention of Money Laundering Act, which led to the bank being barred from accepting fresh deposits, said the person.
Paytm Payments Bank started operations in 2017, riding on its post-demonetisation success.
The latest regulatory action is the third against Paytm. In 2018, RBI had asked its payments bank to stop onboarding customers owing to issues with its KYC process. The ban was lifted in January 2019.
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.
Also read | Paytm in talks to migrate payments, settlements from Paytm Payments Bank
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.
Discover the stories of your interest
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.
Security agencies are looking at the possibility of the entity being used as a front to launder money.
“The RBI action was because the company could not cure certain defects despite the earlier regulatory action in March 2022,” said the second person cited earlier.
Also read | ETtech Explainer: how will RBI move impact customers
In March 2022, the regulator had barred the Noida-based company from onboarding new customers and directed it to appoint an external auditor.
In 2022, an RBI inspection found that many of the compliance reports that the payments bank was submitting were not in line with requirements and, in some cases, there were outright false claims.
The banking regulator also allegedly found violations of the Prevention of Money Laundering Act, which led to the bank being barred from accepting fresh deposits, said the person.
Paytm Payments Bank started operations in 2017, riding on its post-demonetisation success.
The latest regulatory action is the third against Paytm. In 2018, RBI had asked its payments bank to stop onboarding customers owing to issues with its KYC process. The ban was lifted in January 2019.