According to an analyst, Paytm Payments Bank has about 35 crore e-wallets. Of this, about 31 crore are dormant while only about 4 crore would be operative with either no balance or a small balance

 

Concerns regarding money laundering and questionable financial transactions amounting to hundreds of crores of rupees between the well-known digital wallet, Paytm, and its less recognized banking subsidiary have prompted the Reserve Bank of India to take strict action against entities associated with Vijay Sekhar Sharma, a prominent figure in the technology sector, according to sources. The regulatory body has instructed Paytm Payments Bank Ltd (PPBL) to cease most of its operations, including accepting further deposits, conducting credit transactions, and facilitating top-ups on any customer accounts, prepaid instruments, wallets, and cards used for road toll payments, effective immediately after February 29.

As a result of this directive, customers will retain access to their existing deposits and will be able to utilize the funds stored in their wallets until the end of February. However, if the Reserve Bank of India maintains its stance, the option to top-up Paytm wallets will be suspended, and transactions through these wallets will no longer be feasible.

In a significant move against PPBL, the Reserve Bank directed the institution earlier this week to discontinue the acceptance of deposits or top-ups in customer accounts, wallets, FASTags, and other instruments after the specified date in February.

Sources indicate that PPBL had numerous accounts that were non-compliant with the Know Your Customer (KYC) regulations, with thousands of cases where a single PAN (Permanent Account Number) was used to open multiple accounts. Additionally, there were instances where the total value of transactions exceeded regulatory limits for minimum KYC pre-paid instruments, raising concerns about money laundering activities.

According to an analyst, Paytm Payments Bank currently has approximately 35 crore e-wallets, of which approximately 31 crore are inactive, leaving only around 4 crore operational with either no balance or a minimal balance. The unusually high number of dormant accounts suggests the possibility of their use as mule accounts.

Thus, there were significant irregularities in KYC compliance, posing serious risks to customers, depositors, and wallet holders.

Sources reveal that the Reserve Bank of India identified serious KYC and Anti-Money Laundering (AML) violations in 2021 and instructed the bank to rectify these deficiencies. However, these issues persisted despite the directives.

The submissions made by the bank for compliance were found to be inadequate and inaccurate on multiple occasions, according to sources.

Consequently, in March 2022, the Reserve Bank imposed supervisory restrictions on PPBL, prohibiting the onboarding of new customers with immediate effect and mandating the appointment of an external audit firm to conduct a comprehensive system audit.

Numerous accounts and wallets have been frozen by law enforcement agencies across the country as they were utilized for committing digital fraud.

As part of a corrective measure, the Enforcement Directorate (ED) conducted raids at the premises of PPBL and its parent company, One97 Communications Ltd (OCL), as well as other payment aggregators in September 2022.

The ED launched an investigation under the criminal provisions of the Prevention of Money Laundering Act (PMLA) following reports of individuals falling victim to fraudulent digital loan schemes in various states.

It was alleged that illegal digital lending platforms obtained personal data of borrowers during app downloads on their devices.

The agency stated that proceeds of crime in this case were channeled through e-wallets and other payment aggregators.

A senior government official indicated that the ED would continue to investigate allegations of money laundering as needed.

In response to the RBI’s directive, shares of One97 Communications Ltd, the parent company of the Paytm brand, plummeted by 40 percent over the past two days. The stock hit the lower trading limit, dropping by 20 percent to Rs 487.05 on the BSE on Friday.

The company’s market capitalization declined by Rs 17,378.41 crore to Rs 30,931.59 crore over the span of two days.