RBI fines Paytm Payments Bank for KYC failings

The Reserve Bank of India (RBI), the country’s central bank, recently issued a $650,000 fine to Paytm Payments Bank after finding that the bank failed to conduct adequate know-your-customer (KYC) processes.

The RBI reached out to Paytm Payments Bank last year, in 2022, when it instructed it to stop onboarding new customers. Instead, the bank was supposed to appoint an IT audit firm, as the RBI had certain supervisory concerns.

RBI confirms the charges of non-compliance with KYC rules

Following special scrutiny of the bank from a KYC and AML perspective, the Reserve Bank of India has found a lack of compliance with certain provisions of its rules. Specifically, the RBI believes that Paytm Payments failed to identify beneficial owners of entities on-boarded by it for providing payout services. It also failed to monitor payout transactions, as well as carry out risk profiling of entities availing payout services.

Furthermore, Paytm Payments did not report a cyber incident that it suffered as soon as it became aware of it, as it was obligated to do by the local laws. In addition, the RBI found that its own video-based customer identification process, or V-CIP, was non-operational as part of Paytm’s systems.

All of this rendered the bank effectively incapable of identifying any user who might try to log into their account from outside of the country.

The RBI decided to make a harsher move in order to ensure that the bank would become compliant, thus penalizing it with a 5.4 crore fine, which is around $650,000. The central bank first served a show-cause notice, and after reviewing the bank’s feedback to the notice, plus taking into account remarks made during an in-person hearing, the RBI concluded that the charges of non-compliance held true, hence the fine.

RBI issues fines against three more banks for non-compliance

However, after Paytm Payments, RBI also went on to issue additional fines to several other financial institutions operating in the country, including the RBL Bank, Union Bank, as well as Bajaj Finance.

According to reports, all of these banks were guilty of some sort of rule violation. The Union Bank, for example, is the latest on the list of penalties, but it received the highest one among the mentioned banks, not counting Paytm itself. The penalty was Rs 1 crore, while the smallest one went to Bajaj Finance — only Rs 8.50 lakh. As for RBL Bank, it was penalized with Rs 64 lakh.

According to the RBI, the Union Bank was in non-compliance with directions regarding to Loans and Advances – Statutory and Other Restrictions. RBL Bank, based in Mumbai, was not compliant with Prior approval for acquiring shares or voting rights in private sector banks Directions, 2015. Lastly, Bajaj Finance failed to comply with the Monitoring for Frauds in NBFCs Directions, 2016.