Paytm crisis: Why did the RBI have to punish Paytm Payments Bank harshly?

Paytm crisis: Why did the RBI have to punish Paytm Payments Bank harshly?

Paytm crisis: Why did the RBI have to punish Paytm Payments Bank harshly?

On the condition of anonymity, sources claimed that the Reserve Bank had furthermore been notified of a complaint against Paytm Payments Bank for breaking a statute intended to stop money laundering. During the assessment of the Payments Bank, the Reserve Bank discovered a number of anomalies, including legal infractions related to money laundering.

Paytm Payments Bank has been hit with legal action for breaking regulations and disobeying Reserve Bank of India (RBI) advisories. On the condition of anonymity, sources said that the Reserve Bank had furthermore been notified of a complaint alleging that Paytm Payments Bank had violated anti-money laundering laws.

Process error in the KYC

Sources claim that during the Payments Bank audit, the Reserve Bank discovered a number of anomalies, including a breach of the Prevention of Money Laundering Act. The Reserve Bank claims that the bank failed to adequately verify the KYC (Know Your Customer) documentation. The Reserve Bank discovered that prior to adding clients, the business neglected to confirm the funding source. "The audit found that large-scale transactions was conducted through merchant accounts because proper KYC process was not followed to identify the source of funds," according to a source.

Deals involving other group businesses

There were'related-party transactions' involving other Paytm group entities in the second instance, according to sources. The Payments Bank was not taking enough precautions to shield itself from conflicts of interest, according to the banking regulator. "The RBI was concerned about the self-determination of Paytm Payments Bank due to the high level of relationship between Paytm Payments Bank and other group entities as well as Paytm founder Vijay Shekhar Sharma having indirect influence on key decisions and operations of the bank," according to a source. This was present as well.

intricate shareholding structure

According to sources, the Reserve Bank was also worried about Paytm Payments Bank's intricate ownership structure. Ten percent of the bank's shares are owned by the joint venture between Sharma and One97 Communications, while 49 percent is controlled by One97 Communications. In addition, Sharma controls One97 by way of directorship and ownership. If reports are to be believed, the Central Bank was also alerted of the Payments Bank's IT system error, but nothing could be done about it.