ED starts investigation into Paytm Payments Bank after RBI's restrictions on business: Report

At first, the investigative agency had requested more details from the Reserve Bank of India (RBI).

The RBI had instructed Paytm Payments Bank to scale down a significant portion of its operations by February 29, citing continuous and major supervisory issues. However, Paytm has yet to officially confirm this development.

The RBI’s January 31 order restricts Paytm Payments Bank from accepting new deposits and conducting credit transactions after February 29.

Since the central bank's order, Paytm has lost nearly 55 percent of its market value. The company's shares fell nearly 10 percent on Wednesday, reported Economic Times.

The Central bank cracked its whip on the company after it discovered major irregularities in the Know Your Customer (KYC) processes, revealing a major risk to the security of customers, depositors, and wallet holders.

These issues include the absence of Know Your Customer (KYC) documentation for a considerable number of customers, reaching hundreds of thousands, as well as failures in PAN validation for thousands of accounts.

In a previous move in March 2022, RBI had prohibited Paytm Payments Bank from onboarding new customers.

The investigation by the RBI revealed thousands of instances where a single PAN was linked to over 100 customers, and in some cases, more than 1,000 customers, leading to transactions of substantial value, surpassing regulatory limits for minimum KYC pre-paid instruments and raising concerns about potential money laundering, Moneycontrol had reported citing sources.

The regulatory body also identified an unusually high number of dormant accounts, which could be susceptible to use as mule accounts. There are also concerns about money laundering arising from deficiencies in the bank's KYC processes and the absence of a transaction monitoring system, the report said.

Moreover, Paytm Payments Bank Limited's (PPBL) financial and non-financial activities were intermingled with its promoter group companies, contravening licensing conditions and RBI directives on this matter, according to the report.

The source added that PPBL's reliance on the IT infrastructure of OCL remained absolute, and there was no operational segregation.

It was noted that numerous transactions were routed through the apps owned by the parent entity, giving rise to significant concerns regarding data privacy and data sharing.

The source said quoted by Moneycontrol said that on multiple occasions, the compliance submitted by the bank was discovered to be false during verification, conducted by both RBI supervisors and external auditors.

Further, there were instances of non-disclosure of significant intra-group transactions and related party transactions. The report also stated that the bank's substantial payables to OCL were not disclosed in the financial statements of the bank.