Why RBI Banned Paytm Payments Bank From Boarding New Customers

The Reserve Bank of India (RBI) Bans Paytm Payments Bank Ltd to give up onboarding new clients with immediate impact and conduct a comprehensive audit of its IT system, citing “material supervisory concerns”.

Onboarding of new customers through Paytm Payments Bank will be concern to particular permission to be granted by way of RBI after reviewing file of the IT auditors, the RBI said. Could be due to quite a few motives such as violation in following norms associated to Know Your Customer (KYC), statistics storage, statistics privateness and outsourcing of data, amongst others, stated experts.

“This action is based totally on positive material supervisory worries located in the bank,” the central bank said.

Vijay Shekhar Sharma promoted Paytm Payments Bank has also been directed to appoint an IT audit association to conduct a complete System Audit of its IT system, the RBI said in a release.

Yogesh Pirthani, companion at ELP, said the RBI has sizeable powers under section 35A of the Banking Regulation Act, 1949 to impose restrictions on a banking company. Pirthani believes the RBI have to have sought Paytm Payments Bank’s response on IT-related discrepancies and upon unsatisfactory response from the latter, the central financial institution should have taken such an action.

“It is very clear that the RBI has concerns with the IT gadget of Paytm Payments Bank. Data privacy, KYC, facts storage these are RBI’s core issues. The RBI has steered MNCs to have their records centres in India and that is why American Express was once also barred. RBI has very clear pointers on data centre, records storage, statistics outsourcing etc,” Pirthani says.

A senior analyst who spoke on the situation of anonymity stated the exact violation through Paytm Payments Bank is hard to predict, however it need to be something significant in nature. In case of HDFC Bank, the lender was allowed to feature its different services, but Paytm Payments Bank has been asked to stop onboarding of new customers altogether, which will have a vast impact on the fintech major’s growth plans.

This might also additionally probable delay the plans of Paytm Payments Bank to observe for a small finance bank (SFB) licence in June. “If the regulator is not certain about your systems and functioning, for positive it will take longer for them to give the licence to you,” a supply said.

Paytm Payments Bank commenced its operations on May 23, 2017. On March 9, Moneycontrol stated that the lender will probably follow to the RBI for a SFB licence by using June.

According to Paytm Payments Bank website, the business enterprise has a hundred million KYC customers and it is adding 0.4 million users each and every passing month. “We are additionally the biggest provider of FASTag with over eight Million FASTag devices issued,” the bank’s internet site says. As per Paytm’s salary presentation, loans amounting to Rs 2,181 crore have been disbursed through Paytm at some stage in Q3FY22. In phrases of volumes, over 4.4 million loans were disbursed thru the platform in October-December. ​

This is no longer the first time the RBI has requested Paytm Payments Bank to end onboarding of new customers. In 2018, as per reports, Paytm Payments Bank had stopped enrolment of new clients on its platform following observations made by the RBI. Paytm reportedly stopped enrolling new clients following an audit with the aid of RBI, which made positive observations about the process the organisation follows in acquiring new clients and its adherence to KYC.

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