RBI Slaps Rs 5.39 Crore Penalty on Paytm Payments Bank for KYC Norms Violation

The Reserve Bank of India (RBI) has imposed a monetary penalty of Rs 5.39 crore on Paytm Payments Bank Ltd for non-compliance with certain regulatory norms including Know Your Customer (KYC) guidelines. The penalty has been imposed based on deficiencies observed in a scrutiny and audit of the bank’s operations.

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1. RBI Scrutiny Reveals Lapses

2. Where Did Paytm Err

3. RBI Notice and Bank’s Response

4. Penalty Based on Regulatory Breach

RBI Scrutiny Reveals Lapses

The RBI conducted a special scrutiny from KYC/AML perspective on Paytm Payments Bank and also got a comprehensive system audit conducted through appointed auditors.

The examination of the scrutiny report, audit report and related correspondence revealed certain non-compliance by the bank.

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Where Did Paytm Err

The RBI listed out the following lapses on part of Paytm Payments Bank:

Failed to identify beneficial owners for entities onboarded for payout services
Did not monitor payout transactions and profile risk of entities availing payout services
Breached regulatory ceiling of end of day balance in some advance accounts
Delayed reporting of a cyber security incident
Non-implementation of SMS delivery receipt check for device binding control
V-CIP infrastructure did not block connections from outside India

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RBI Notice and Bank’s Response

Based on the findings, the RBI issued a notice to Paytm Payments Bank asking it to show cause why a penalty should not be imposed for non-compliance with directions.

The bank submitted a reply to the notice and made oral submissions during personal hearing. However, the RBI concluded that the charges were substantiated and warranted a monetary penalty.

Penalty Based on Regulatory Breach

The central bank clarified that the penalty is based on deficiencies in regulatory compliance and is not intended to pronounce on the validity of any transaction or agreement entered into by the bank with its customers.

Last year, the RBI had barred Paytm Payments Bank from onboarding new customers citing supervisory concerns. The bank was also ordered to get a comprehensive system audit conducted.

With this latest penalty, Paytm Payments Bank will need to strengthen its compliance mechanisms to meet RBI regulations in areas like KYC, cyber security and other aspects highlighted by the central bank.

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