In a sweeping move, the Reserve Bank of India (RBI) has directed Paytm Payments Bank Ltd (PPBL) to cease most of its operations, including accepting further deposits and conducting credit transactions, citing significant concerns over money laundering and KYC (Know Your Customer) non-compliance.
The RBI’s order, effective from March 1, 2024, restricts PPBL from accepting additional deposits, performing top-ups on customer accounts, and conducting credit transactions. Existing customers, however, will have access to their deposits until February 29. Subsequent transactions through Paytm wallets may be halted if the RBI upholds its directive.
The central bank’s decision is rooted in multiple irregularities observed in the operations of PPBL. The bank reportedly had a substantial number of non-KYC compliant accounts, with instances of a single PAN (Permanent Account Number) being used for opening multiple accounts. Furthermore, transactions involving hundreds of crores of rupees, well beyond the regulatory limits, raised serious concerns of potential money laundering.
Paytm Payments Bank, associated with the popular Paytm wallet, faced criticism for having lakhs of dormant accounts, potentially utilized for dubious activities. Of the approximately 35 crore e-wallets, an analyst estimated that around 31 crore were dormant, leaving only about 4 crore operational with either minimal or no balance.
The RBI had detected severe KYC Anti Money Laundering (AML) violations in 2021 and issued directives to address these deficiencies. However, despite the warnings, the compliance submissions by PPBL were reportedly incomplete and false on several occasions.
In response to these issues, in March 2022, the RBI imposed supervisory restrictions, preventing PPBL from onboarding new customers. An external audit firm was appointed to conduct a comprehensive system audit to rectify the identified deficiencies.
Several law enforcement agencies across the country have frozen accounts and wallets associated with PPBL due to their involvement in digital frauds. In September 2022, the Enforcement Directorate (ED) conducted raids on the premises of PPBL and its parent entity One97 Communications Ltd (OCL), as well as other payment aggregators. The ED initiated a probe under the criminal sections of the Prevention of Money Laundering Act (PMLA), focusing on instances of gullible debtors ending their lives related to digital loan apps.
Shares of One97 Communications Ltd, the owner of the Paytm brand, plummeted by 40% in the last two days following the RBI’s directive. The stock experienced a 20% decline to Rs 487.05, its lowest trading limit, on the BSE on Friday. In just two days, the company’s market capitalization eroded by Rs 17,378.41 crore, falling to Rs 30,931.59 crore.
The ED has indicated a continued investigation into money laundering allegations, signaling potential challenges ahead for Paytm and its affiliated entities.