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RBI action on Paytm linked to violation of KYC norms; may have limited impact on biz

RBI action on Paytm linked to violation of KYC norms; may have limited impact on biz

RBI action on Paytm linked to violation of KYC norms; may have limited impact on biz
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By Ritu Singh  Mar 14, 2022 11:05 PM IST (Updated)

CNBC-TV18 understands that a recent supervisory audit by the RBI had found violations in know your customer norms. A significant number of dormant accounts were found at PPBL, which was opened without conducting adequate KYC and due diligence on the depositors.

The Reserve Bank of India's (RBI) directive to stop Paytm Payments Bank Ltd (PPBL) from onboarding new customers is linked to major supervisory concerns that it has with the bank.

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CNBC-TV18 understands that a recent supervisory audit by the RBI had found violations in know your customer norms. A significant number of dormant accounts were found at PPBL, which was opened without conducting adequate KYC and due diligence on the depositors.
RBI is also understood to be looking into the potential flouting of data-storage norms by PPBL. After issuing several showcause notices to Paytm, RBI finally took this action. But this is not the first time that the regulator has taken action against the bank either. In its 4 odd years of existence, it has been penalized twice – in 2018 and 2021 for various issues.
Paytm in its statement said it is taking immediate steps to comply with RBI directions, including appointing an IT auditor. It believes the ban will not have a material impact on Paytm’s overall business.
Paytm Payments Bank is an associate company of Paytm; 49 percent owned by Paytm, 51 percent owned by Vijay Shekhar Sharma. It has a revenue-sharing agreement with Paytm and contributed Rs 9 billion or a third of Paytm’s topline revenue for FY21. Importantly, it houses all the key products offered by Paytm: wallet, UPI, and deposit accounts.
Brokerages view this as a strong regulator signal but believe it will have a low near-term impact on business. This is because of a few reasons. First, Paytm has already onboarded a very large customer base onto PPBL. Second, a significant portion of Paytm’s large registered wallet user base is inactive and could be activated.
Three, a majority of Paytm’s new users come via UPI where there is no restriction. But on the flip side, this development could hurt PPBL's ambitions to become a small finance bank—it would have been eligible to apply at the end of May but now the timeline may get pushed further.
The stock hit an all-time low in trade on the back of that news. Some brokerages have cut the target price after the move, it currently ranges from Rs 1,460 to Rs 700 across brokerages.
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