As more details surface around the reasons for Reserve Bank of India taking stringent action against Paytm Payments Bank, doubts thicken around the possibilities of the bank fudging its user base details and acting in a manner non-complaint to its licensing requirements. According to highly placed sources aware of the matter, while Paytm Payments Bank boasts of 330 million wallet users only 20 million may be active wallet users of the payments bank, while 310 million may have been redundant accounts.

Some of the case documents perused by businessline, which detail the irregularities noted by the regulator, reveal the absence of KYC (know your customer) for very large number of customers, permanent account number (PAN) validation failures in several accounts running into millions, single PAN used for onboarding multiple customers and an unusually high number of dormant accounts.

Grave inadequacies

The documents note that there are case where a same PAN is linked to 100s and 1000s of customers and value of transactions carried out through such inadequate PAN run into crores of rupees, far exceeding the minimum KYC pre-paid instruments limit permitted by regulations.

In an email sent to the company, Paytm did not comment on the above matter.

“Irregularities such as these throw open the suspicion of money laundering,” said a highly placed source aware of the development, adding that based on past experiences cases where there have been high number of dormant accounts such accounts are likely to have been as mule accounts or accounts used for transacting on behalf of someone else and not the registered user.

Comingling of biz operations

Inter-corporate transfers between One97 Communications Ltd and its associate company Paytm Payments Bank has also come under regulatory scrutiny. “In effect, One97 Communications is a business correspondent (BC) to Paytm Payments Bank. But One97 was charging fees unusually high for such BC transactions and an exorbitant royalty in addition to this for the bank to use Paytm brand name,” said another person familiar with matter.

There was significant co-mingling or inter-connectedness between the payments bank and One97 Communications’ financial and non-financial activities, which is also said to have resulted in regulatory discomfort over the bank’s business operations. According to licensing conditions for Paytm Payments Bank, it was required to maintain its own information technology infrastructure and have clear boundaries drawn between the operations of the bank and its parent company.

“Despite several warnings and observations made by the regulator on this matter, there was a lot of dependence by the payments bank on its parent entity. Many transactions were routed through the parent entity owned apps,” said the person cited above giving rise to serious concerns on data privacy and data sharing.

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Glaring irregularities

– Only 20 million may be active wallet users out of 330 million wallet user base stated by Paytm Payments Bank

– Same PAN said to be linked to over 1000s of customers; value of such irregular KYC transactions breaching crores of rupees

– Significant interconnectedness between the payments bank and One97 Communications’ financial and non-financial activities

– Non-compliance payments banks basic licensing conditions including failure to set up separate IT setup for the bank