RBI bans Paytm Payments Bank amid money laundering concerns, future insecure

Amidst the rising money laundering concerns and suspicious dealings of hundreds of crores of rupees in Paytm Payments Bank Ltd (PPBL), it is all set to witness an uncertain future as the Reserve Bank of India (RBI) has barred it from fresh top-ups and deposits, effective February 29, 2024. However, the RBI has not intimated anything yet with regards to the cancellation of the license of Vijay Sekhar Sharma-led services of PPBL.

Following this clamp-down, the payments arm of the bank is expected to see a dip in deposits and businesses as serious charges have been leveled against PPBL which could lead to the invalidation of the license after the deadline in February.

In line with this, the central bank has asked PPBL to cease majority of its businesses, which includes further deposits, prepaid instruments, wallets, conducting credit transactions and carrying out top-ups on any customer accounts, and cards for paying road tolls after February 29.

It implies that the customers can use only their already existing deposits and pay with the money accumulated in their wallets till the end of February. If RBI does not back out the top-ups and other transactions through Paytm will stop and they will not be applicable anymore.

Paytm Payments Bank Ltd had many non-KYC (Know Your Customer) compliant accounts and in many cases, a single PAN was used for opening and operating multiple accounts. One of the major concerns was the total value of transactions (worth crores) exceeding the regulatory limits in minimum KYC pre-paid instruments which lead to money laundering concerns.

According to sources, PPBL has about 35 crore e-wallets out of which 31 crore are dormant while the remaining 4 crore is operating with either small or no balance. There were notable irregularities in KYC that exposed the online customers, wallet holders and depositors to serious threats.

Prior to this in 2021, the RBI found out some KYC Anti Money Laundering violations and Paytm was suggested to address the irregularities. However, the same issues persisted as the report submitted by the bank was again detected to be incomplete and false, according to sources.

After this in March 2022, RBI laid down supervisory restrictions on PPBL to immediately stop 'new customers' onboarding'. The RBI also asked Paytm to hire an external audit firm for conducting a comprehensive audit system. As a result, many accounts and wallets have been frozen to prevent further digital frauds.

As part of a clean-up mission, in September 2022, the Enforcement Directorate (ED) had raided at different premises of PPBL, its parent entity One97 Communications Ltd (OCL) and some other payment aggregators under the criminal sections of the Prevention of Money Laundering Act (PMLA). There were allegations that fraudulent digital loan companies sourced the personal data of the loan-taker while downloading these apps in their phones.

The ED would further investigate the money laundering allegations, if required in the future.

After the RBI curbs, the company’s market capitalisation (mcap) crumbled by Rs 17,378.41 crore to Rs 30,931.59 crore. Also, One97 Communications Ltd shares nose-dived 40 percent in the last two days.