The Paytm Payments Bank Limited (PPBL) has been barred from onboarding new customers by the RBI as it allowed data to flow into servers of Chinese-based entities.
This violation was found by the RBI during an annual inspection, as per a report by Live Mint.
The PPBL also failed to properly verify its customers, the report further says.
“Annual inspections by the Reserve Bank of India found that the company’s servers were sharing information with China-based entities that indirectly own a stake in Paytm Payments Bank,” Live Mint quoted a person as saying.
According to exchange filings, China’s Alibaba Group Holding Limited and its affiliate, Ant Group Co. (of Jack Ma) also owns shares of Paytm.
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The RBI has in the past punished companies such as American Express Banking Corp. and Mastercard Inc. for defying the rules set by India’s Central Bank.
“(PPBL), being a regulated financial institution, was required to maintain a so-called service level agreement with its technology vendor that would ringfence the entity from its owners,” Live Mint quoted the person further saying.
PPBL had also taken up many customers without completing Know-Your-Customer (KYC) process.
There were speculations that some of these inadequate KYC were a front for money-laundering.
This action of barring PPBL from signing new customers was taken on the basis of “certain material supervisory” issues, as per the RBI press release.
The RBI has also ordered the PPBL to appoint an IT audit firm to undertake a thorough and exhaustive audit of its IT system.
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In August 2015, Paytm had received a license from the RBI to launch the Payments Bank as a separate entity. It officially began operations in 2017.
Vijay Shekhar Sharma, Founder and CEO of Paytm, owns 51 percent in the PPBL. One97 Communications Limited holds 39 percent and the remaining 10 percent is a joint venture between Vijay Shekhar Sharma and One97 Communications Limited.
As of April 2021, PPBL had over 64 million customers. In the FY 2020, PPBL made a net profit of INR 29.8 crore.
Back in June 2018, the RBI had ordered PPBL to stop onboarding of new customers after an audit by the central Bank which made certain observations regarding the procedure which the entity followed to bring in new customers as well as its adherence to the Know Your Customer (KYC) norms.
