Paytm Payments Bank annual report shows board was confident RBI would validate corrective measures

Paytm founder Vijay Shekhar Sharma

Paytm Payments Bank’s latest annual report (FY23) shows that its board was confident that the corrective measures taken by the bank to plug gaps in its IT processes, KYC processes and other issues highlighted by the Reserve Bank of India (RBI) would be viewed favourably by the regulator.

On January 31, the RBI virtually halted the operations of the payments bank by imposing significant business restrictions, including a ban on accepting fresh deposits. Since then, the stock price of the payments bank’s parent, One97 Communications Ltd, has crashed by over 42 percent, ending at Rs 438.35 on February 5.

In the annual report section titled ‘Board’s Report’, the board of directors noted that the Bank has completed the recommended actions, including remedial measures, and submitted a progress report to the RBI for validation.

“As a result, the Bank has demonstrated its commitment to regulatory compliance and strengthening its systems and processes,” the bank’s directors noted in the report.

The board made these comments in the wake of the bank’s various responses to the RBI’s action in March 2022, when it had directed Paytm Payments Bank to stop onboarding new customers, citing ‘supervisory concerns’.

Following this the RBI had appointed an external independent auditor to conduct a comprehensive system audit of the bank’s IT systems. In October 2022, the central bank had provided the audit report, outlining observations such as the need for continuous improvement in IT outsourcing processes and operational risk management, including KYC/AML (anti-money laundering) processes.

The bank responded to the RBI in December 2022, updating it on the efforts it was making to address the observations. In response, the central bank recommended certain remedial action and further compliance steps, to be taken by March 31, 2023.

The RBI validation process was still underway and the central bank’s response was awaited when the bank prepared its annual report for FY23.

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The annual report went on to outline various measures the bank was undertaking to improve its regulatory engagement and relationship, highlighting its efforts to strengthen compliance. “These engagements underscore our collaboration with regulators and other stakeholders to ensure promotion of innovation in payment systems and in ensuring effective implementation of regulations in letter and spirit by upholding the compliance culture at the bank,” the bank’s board highlighted in the annual report.

Steps taken by the bank, as mentioned in the annual report, included the leadership’s active participation in various regulatory forums such as Digital Payments Utsav, Nationwide Intensive Awareness Campaign, expert committee on CKYCR/KYC matters and Risk-Based Approach to KYC/AML supervision, as well as periodic engagements called by the Financial Intelligence Unit, India.

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Paytm Payments Bank’s board also highlighted the efforts by its chairman, Vijay Shekhar Sharma, noting that he had spoken at various forums such as the World Economic Forum at Davos, Global Fintech Festival 2022 (organised by NPCI) and promoted the RBI’s initiative on ‘Har Payment Digital’.

The senior management of the Bank, including members of the board, was invited by the RBI to various high-level workshops and interactions organised by the regulator on payment systems, the annual report added.