RBI imposes Rs 5.39 cr penalty on Paytm Payments Bank for KYC norms violation

PAYTM Payments Bank_

The Reserve Bank of India (RBI) imposed a monetary penalty of Rs 5.39 crore on Paytm Payments Bank for violating KYC norms.

In a press release issued on October 12, the central bank said that the action was taken by the regulator for non-compliance with certain provisions of the ‘Reserve Bank of India (Know Your Customer (KYC)) Directions, 2016’, ‘RBI Guidelines for Licensing of Payments Banks’ read with ‘Enhancement of maximum balance at end of the day’, ‘Cyber security framework in banks’ read with ‘Guidelines on reporting of unusual cyber security incidents’ and ‘Securing mobile banking applications including UPI ecosystem’.

"This penalty has been imposed in exercise of powers vested in RBI conferred under the provisions of Section 47A(1)(c) read with Section 46(4)(i) of the Banking Regulation Act, 1949," the RBI said in its statement.

RBI added that this action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.

The press release added that special scrutiny from the KYC/AML perspective of the bank was conducted by RBI and a comprehensive system audit of the bank was conducted by auditors identified by RBI.

The examination of the special scrutiny report, comprehensive system audit report and related correspondence pertaining to the same revealed, inter alia, non-compliance with the aforesaid directions by the bank to the extent (i) it failed to identify the beneficial owner in respect of entities onboarded by it for providing payout services, (ii) it did not monitor payout transactions and carry out risk profiling of entities availing payout services, (iii) it breached the regulatory ceiling of end of the day balance in certain customer advance accounts availing payout services, (iv) it reported a cyber security incident with delay, (v) it failed to implement device binding control measure related to ‘SMS delivery receipt check’, and (vi) its V-CIP infrastructure failed to prevent connections from IP addresses outside India.

"In furtherance to the same, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed on it for failure to comply with the said directions, as stated therein," said RBI.

The central bank said that after considering the bank’s reply to the notice and oral submissions made during the personal hearing, it came to the conclusion that the charge of non-compliance with the aforesaid RBI directions was substantiated and warranted an imposition of monetary penalty on the bank.