Explained: Why did RBI ban Paytm payments bank?

The Reserve Bank of India has clamped down on an entity run by tech poster boy Vijay Shekhar Sharma over money laundering concerns and suspicious transactions of hundreds of millions of rupees between popular wallet Paytm and its little-known banking arm, sources said.

Also Read: Paytm FASTag users need to buy new FASTag after February 29? The company says “don’t worry”

The central bank has ordered Paytm Payments Bank Ltd (PPBL) to cease most of its operations, including continuing to accept deposits, conduct credit transactions and recharge any customer accounts, prepaid instruments, wallets and cards for payment of road tolls after February 29.

This means that customers have until February 29 to withdraw existing deposits and pay for the service using funds stored in the wallet. If the RBI does not relent, recharging of Paytm wallets will stop and transactions will no longer be possible through the wallet.

In a major move against PPBL, the Reserve Bank earlier this week directed lenders to stop accepting deposits or top-ups from customer accounts, wallets, FASTags and other instruments after February 29.

Also read: Why Paytm share price plunged another 20% today?Read details of RBI action against One97 Communications

Sources said PPBL had hundreds of thousands of accounts that did not comply with KYC (know your customer) requirements and in thousands of cases, a single PAN was used to open multiple accounts.

In some cases, the total value of transactions ran into crores of rupees, far exceeding regulatory limits for minimum KYC prepaid instruments, raising money laundering concerns, sources said.

According to analysts, Paytm Payments Bank has an e-wallet of around Rs 35 crore. Of this, about Rs 31 crore is dormant, while only about Rs 4 crore is operational, with either no or very little balance.

An unusually high number of dormant accounts are likely being used as mule accounts.

As a result, there are significant KYC breaches that expose customers, savers, and wallet holders to serious risks.

The Reserve Bank of India (RBI) identified serious KYC anti-money laundering irregularities in 2021 and directed the bank to address the deficiencies, sources said. Yet, they persisted.

Compliance documents submitted by the bank were repeatedly found to be incomplete and false, sources said.

Therefore, in March 2022, the Reserve Bank of India imposed regulatory restrictions on PPBL, immediately stopped accepting new customers and appointed an external audit firm to conduct a comprehensive system audit.

In multiple cases, accounts and wallets have been frozen by law enforcement agencies across the country because such accounts were used to commit digital fraud.

As part of the clean-up operation, the Enforcement Directorate (ED) conducted raids on the premises of PPBL, its parent company One97 Communications Ltd (OCL) and other payment aggregators in September 2022.

The education ministry launched an investigation under the criminal section of the Prevention of Money Laundering Act (PMLA) after several incidents in various states of gullible debtors ending their lives.

Illegal digital lending companies allegedly harvested all personal data of lenders when they downloaded the apps on their phones.

The agency said the alleged proceeds of crime in the case were routed through e-wallets and a number of other payment aggregators.

When contacted, a PPBL spokesperson said: “We can confirm that neither we nor the founder and CEO of One97 Communications Ltd are the subject of an Enforcement Directorate investigation into money laundering matters.” The spokesperson said some merchants on the platform are occasionally subject to The company will cooperate fully with the authorities in this case.

A senior government official said the Education Bureau would further investigate the money laundering allegations if necessary.

Shares of One97 Communications Ltd, which owns the Paytm brand, have fallen 40% in the past two days following the Reserve Bank of India’s directive. The stock fell 20% to Rs 487.05 on the Bombay Stock Exchange on Friday, the lowest allowed trading limit for the day.

Within two days, the company’s market capitalization (mcap) fell by Rs 17,378.41 crore to Rs 30,931.59 crore.

(This article has not been edited by News18 staff and is published by PTI)