At a recent meeting with the fintech industry in Delhi, the Reserve Bank of India (RBI) assured the participants that it will consider opening a more structured engagement channel to discuss various issues periodically and give its feedback, according to a person familiar with the development.
At the meeting, attended by fintech leaders and officials from the finance ministry and the central bank, discussions came up on how to enhance the engagement with the industry. The RBI conducts periodic meetings with other stakeholders such as commercial banks and non-banking finance companies (NBFCs) to discuss industry matters.
A similar engagement channel with the fintech industry could improve the understanding between the regulator and the stakeholders on compliance issues, the participants observed. “One of the points discussed was to engage with the industry more regularly, even on a monthly basis, to give the RBI’s feedback on multiple issues,” said the person.
To be sure, the RBI is yet to decide how to take this plan ahead. But, the assurance from the regulator to the industry is crucial after its recent clampdown on fintech major Paytm invited criticism from certain quarters that the regulatory action will stifle innovation in the fintech ecosystem.
For instance, Ashneer Grover, the co- founder of BharatPe, had said that the central bank's move was against the interest of fintech firms and called upon Finance Minister Nirmala Sitharaman and Prime Minister Narendra Modi's office to look into the matter. "I don’t understand the RBI. Clearly, the RBI does not want fintechs in business. Of late, all regulations/moves are against fintechs. Such moves will kill the sector altogether," he wrote on X.
At the Delhi meeting, the central bank assured the fintech industry that it is all for promoting innovation in the sector but highlighted the need for strict compliance in companies dealing with financial services and know-your-customer norms.
The finance ministry too suggested that the regulator should have a more frequent engagement with the industry. “The RBI regulates all institutions which are in the business of lending money or are a crucial part of the money flow. The RBI has been doing regular meetings with all stakeholders on a continuous basis,” said the person.
After the Delhi meeting, the finance ministry had released six action points that encompass the simplification and digitisation of KYC (Know Your Customer) processes across all fintech sectors and the facilitation of interactions between fintech firms and law enforcement agencies to address their concerns or issues. The meeting was attended by RBI deputy governor T Rabi Sankar, SBI chairman Dinesh Kumar Khara, and officials from the National Payment Corporation of India (NPCI), among others.
RBI action on Paytm
The Delhi meeting comes in the backdrop of an RBI clampdown on Paytm Payments Bank (PPBL) over several compliance violations. On January 31, the RBI imposed major business restrictions on Paytm Payments Bank, including accepting fresh deposits and doing credit transactions after February 29. The decision comes after the central bank in March 2022 barred Paytm Payments Bank from onboarding new customers.
The regulator found that there are major irregularities in KYC, which exposed the customers, depositors, and wallet holders to serious risk. These include the absence of KYC for a very large number of customers (running into lakhs), PAN validation failures in lakhs of accounts, and single PAN used for multiple customers, the person quoted above said.
During its probe, the RBI found that in thousands of cases, the same PAN was linked to more than 100 customers and, in some cases to more than 1,000 customers, the total value of transactions - running into crores of rupees, much beyond regulatory limits in minimum KYC pre-paid instruments raising money laundering concerns.
Also, the regulator found that there was an unusually high number of dormant accounts which are prone to have been used as mule accounts. There are also concerns relating to money laundering arising from deficiencies in the KYC processes and lack of transaction monitoring system of the bank.
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