With less than a month left to migrate nodal accounts of One97 Communications Ltd and Paytm Payments Services Ltd from Paytm Payments Bank, a fresh layer of difficulty seems to have hit One97 Communications, which houses the Paytm brand and its group entities. According to sources, several allegations of regulatory non-compliances have surfaced against Paytm and its group entities in the recent days causing banks to turn cautious about housing Paytm’s nodal accounts.

Opening a fresh nodal account with a bank would require the customer to comply with KYC or know your customer norms. In case of Paytm which is a corporate entity, banks would also run tests on whether any anti-money laundering (AML) related issues have surfaced in the entity as part of KYC checks. Even though none of the allegations pertaining to AML are under investigation or these charges have been proven, mere suspicion of AML non-compliance is adequate for banks to reject an entity’s application for opening new accounting citing KYC deficiencies.

Paytm spokesperson denied the same. “Over the last two years, Paytm has been working with multiple third-party leading banks. We are expanding these relationships, and they are progressing positively,” the spokesperson replied to an e-mail sent seeking comments.

Room for suspicion

However, bankers say that once there is room for suspicion, banks may wait for a final outcome or clarification to come through from the investigation agencies to proceed with company and /or its group entities.

“KYC-related issues are very serious aspects for banks to take into account, especially when it is a high-profile case. Non-compliance of KYC attracts monetary penalties from the RBI and there is a lot of regulatory investigation around it as well,” said a senior banker of a large bank.

A nodal account is a special internal bank account similar to a current account which is opened for businesses that are intermediaries and involves connecting customers and vendors. For banks, nodal accounts is a meaty source of float income and hence banks are forthcoming in opening these accounts in most cases. “However, in Paytm’s case, the cost of doing business may exceed the advantages under the current circumstances,” said a top official of a private bank.

On February 1, Vijay Shekar Sharma, founder of One97 Communications, told analysts that the company is working with various banks and Paytm Payments Bank was one of the key banks. “From here on, we are clear that we will work with various other banks and not Paytm Payments Bank,” he said on the analyst call.

Why nodal acc is important

Nodal account is a special bank account similar to current account

It is opened for businesses which intermediate and involve connecting customers and vendors

For banks, nodal accounts are a meaty source of float income

AML-related allegations against Paytm and its group entities force banks to turn cautious to house Paytm nodal accounts

Banks fear being questioned by RBI for KYC deficiency in this case