Just a few days after Paytm Payments Bank was barred by the Reserve Bank of India (RBI) from onboarding new customers, Bloomberg reported that this was because the company’s servers were indirectly sharing information with entities based in China which indirectly own a stake in Paytm Payments Bank. The report said that Paytm Payments Bank allowed data to flow to servers abroad and also did not properly verify its customers.
Alibaba Group and the Ant Group have stakes in Paytm, which in turn has a stake in Paytm Payments Bank. Paytm founder Vijay Shekhar Sharma holds a 51% stake in Paytm Payments Bank, while the remaining 49% is held by Paytm.
The RBI on Friday asked Paytm Payments Bank to stop opening new accounts amid "material supervisory concerns" observed in the bank. This was the third time that Paytm Payments Bank is facing action from the banking regulator since its inception in May 2017. It has been prohibited from opening new accounts for the second time. The bank has also been directed to appoint an IT audit firm to conduct a comprehensive system audit of its IT system.
"Onboarding of new customers by Paytm Payments Bank Ltd will be subject to specific permission to be granted by RBI after reviewing reports of the IT auditors. This action is based on certain material supervisory concerns observed in the bank," it said.
Moneycontrol reported on Monday, March 14 that Paytm Payments Bank has strictly been told to appoint an auditor only after consulting with the RBI. The terms of reference of this appointment will be decided by the RBI, the report added. According to a report by the Informist, RBI had stressed in previous audits that separate IT systems and staff were needed between Paytm Payments Bank and Paytm, as they are separate entities.
In response to Bloomberg’s report, a Paytm Payments Bank spokesperson said it was “false and simply sensationalising”, and it was compliant with data localisation norms. “All of the Bank’s data resides within the country,” it said.
Paytm Payments Bank was incorporated in August 2016 and formally began its operations in May 2017 from a branch in Noida. As per the last disclosed numbers, Paytm Payments Bank had around 6.4 crore customers. The RBI had in June 2018 too, prohibited Paytm Payments Bank from onboarding new customers on account of supervisory concerns. The restrictions were lifted on December 31, 2018.
The central bank had also issued a show cause notice to the firm dated July 29, 2021, stating that Paytm Payments Bank had committed an offence under the Payment and Settlement Systems Act, 2007 by submitting false information to RBI confirming completion of the transfer of Bharat Bill Payment Operating Unit business by One97 Communications to Paytm Payments Bank. The RBI had imposed a penalty of Rs 1 crore on Paytm Payments Bank for the offence.
Shares of One97 Communications (Paytm’s parent firm) were hammered down by 13% after the letter by the RBI, which came late on Friday. The stock is down by over 65% from its issue price.
With inputs from PTI