KYC-AML rule breach led to lens on Paytm Payments Bank: Sources

The Reserve Bank of India (RBI) has prohibited Paytm Payments Bank from acquiring new customers primarily owing to violations of norms on “know your customer —anti-money laundering (KYC-AML)”, multiple sources told Business Standard.

Banks are supposed to undertake due diligence of customers before on-boarding, which is the first step. If a bank fails in this, other issues crop up.

The payments bank, in which Vijay Shekhar Sharma has a 51 per cent stake, and One 97 Communication 49 per cent, was directed by the banking regulator to appoint a firm for an I-T audit. The RBI said approval to acquire new customers would be done after a review of the report of the auditors.

Sources close to the development said the banking regulator was discussing concerns related to KYC-AML norms with the payments bank for over six months and action was taken after the lender failed to comply with them.

In an interview to Business Standard, Sharma, chairman of Paytm Payments Bank, said the RBI had given a specific timeframe to sort out the issues involved.

“The process is two-step. There is a certain time to correct those things, and then the auditor will be appointed,” Sharma said without divulging details on the issues raised by the regulator.

Banking industry experts said the RBI had been strict on complying with KYC-AML norms in view of the FATF (Financial Action Task Force) country review, which is coming up this year or early next year.

“India is expected to undergo an FATF review at the end of the year or early next year,” said K V Karthik, partner, Financial Advisory, Deloitte.              

The RBI has come up with guidelines on undertaking risk assessments. The scrutiny of AML compliance has gone up significantly over the past two to three years,” he added.

Paytm, which debuted on the bourses in November last year, saw its shares tank over 12 per cent on Monday following the RBI action. Analysts expect Paytm’s business to be affected owing to the ban.

“We were estimating Paytm’s consumer base to grow by 10% in FY23E and monthly transacting users to increase at >25% run-rate. Company will have to increase its efforts to enhance engagement with the existing user base to offset the adverse impact of embargo on new users. Now, expecting moderation in onboarding of new users and the adverse impact on incremental payment revenue,” ICICI Securities said in a report.

Sharma, however, said there would be no material impact on Paytm’s customer acquisition.

“As far as Paytm at large is concerned, business will continue to function, and there is no doubt that consumer acquisition, which is led by UPI, is allowed so that would not have any impact,” Sharma added.

According to a DRHP filed by Paytm last year, Rs 900 crore of Paytm’s revenues in FY21 (Rs 33 per cent of the top line) came directly from Paytm Payments Bank, and a similar amount was paid in the form of payments processing charges by Paytm to the payments bank.