Money Laundering Concerns And KYC Non-Compliance Led To Ban On Paytm Bank By RBI

Money laundering concerns and questionable dealings of hundreds of crores of rupees between popular wallet Paytm and its lesser-known banking arm had led Reserve Bank of India to clamp down on tech poster boy Vijay Shekhar Sharma-run entities, sources said.

The central bank has ordered Paytm Payments Bank Ltd (PPBL) to halt most of its business including taking further deposits, conducting credit transactions and carrying out top-ups on any customer accounts, prepaid instruments, wallets, and cards for paying road tolls after February 29.

This means customers can access their existing deposits and pay for services with money stored in their wallets till February 29. And in case, RBI does not relent, top-up for Paytm wallet will stop and transactions through it would no longer can be carried.

In a major action against PPBL, the Reserve Bank earlier this week directed the lender to stop accepting deposits or top-ups in customer accounts, wallets, FASTags and other instruments after February 29.

The PPBL, sources said, had lakhs of non-KYC (Know Your Customer) compliant accounts and in thousands of cases single PANs were used for opening multiple accounts.

There were instances where the total value of transactions - running into crores of rupees, much beyond regulatory limits in minimum KYC pre-paid instruments raising money laundering concerns, sources said.

According to an analyst, Paytm Payments Bank has about 35 crore e-wallets. Of this, about 31 crore are dormant while only about 4 crore would be operative with either no balance or a small balance.

An unusually high number of dormant accounts are prone to have been used as mule accounts.

So, there were major irregularities in KYC, which exposed the customers, depositors and wallet holders to serious risk.

Sources said the RBI in 2021 detected serious KYC Anti Money Laundering violations and the bank was directed to address these deficiencies. However, they continued to persist.

The compliances submitted by the bank were found to be incomplete and false on many occasions, sources said.

Accordingly, in March 2022, RBI imposed supervisory restriction on PPBL to stop on-boarding new customers with immediate effect and to appoint an external audit firm to conduct a comprehensive system audit.

There are several cases where the accounts and wallets have been frozen by various law enforcement agencies across the country as such accounts were used for committing digital frauds.

As part of a clean-up exercise, the Enforcement Directorate (ED) in September 2022 had conducted raids at the premises of PPBL and its parent entity One97 Communications Ltd (OCL) and other payment aggregators.

The ED had initiated a probe under the criminal sections of the Prevention of Money Laundering Act (PMLA) after a number of instances of gullible debtors ending their lives came to the fore from various states.

It was alleged that the illegal digital loan companies sourced all personal data of the loan-taker at the time of downloading these apps on their phones.

The agency had said the alleged proceeds of crime in the case were routed through e-wallets and some other payment aggregators.

When contacted, a PPBL spokesperson said, "We can confirm that neither we nor One97 Communications Ltd's founder-CEO have been the subject matter of investigation by the Enforcement Directorate regarding money laundering."

Occasionally, some merchants on the platforms have been the subject of inquiries, and the company cooperate fully with authorities in such instances, the spokesperson said.

According to a senior government official, ED would further probe money laundering allegations going forward if required.

Following the RBI's direction, shares of One97 Communications Ltd, which owns Paytm brand, slumped 40 per cent in the last two days. The stock tanked 20 per cent to Rs 487.05, its lowest trading permissible limit for the day, on the BSE on Friday.

In two days, the company’s market capitalisation (mcap) eroded by Rs 17,378.41 crore to Rs 30,931.59 crore.