The Reserve Bank of India (RBI) has imposed a significant penalty of ₹5.39 crore on Paytm Payments Bank, citing multiple instances of non-compliance with key RBI guidelines. This fine encompasses breaches related to Know Your Customer (KYC) regulations, cybersecurity provisions, and various other areas of regulatory compliance. The action comes as a result of the central bank’s rigorous analysis of deficiencies in Paytm Payments Bank’s adherence to RBI guidelines.
Non-Compliance with RBI Guidelines
Paytm Payments Bank faced penalties for its failure to adhere to various provisions within the ‘Reserve Bank of India (Know Your Customer (KYC)) Directions, 2016,’ ‘RBI Guidelines for Licensing of Payments Banks,’ ‘Enhancement of maximum balance at the end of the day,’ ‘Cybersecurity framework in banks,’ and ‘Guidelines on reporting unusual cybersecurity incidents,’ along with ‘Securing mobile banking applications including UPI ecosystem.’ The non-compliance extended to areas such as reporting cybersecurity incidents on time, monitoring payout transactions, and risk profiling of entities availing payout services.
Breach of Beneficial Ownership Rules
RBI’s examination revealed that Paytm Payments Bank failed to identify the beneficial owners of entities on-boarded to provide payout services, a breach of fundamental regulations. The bank also fell short in its responsibility to enforce regulatory ceilings on the end-of-day balances in certain customer advance accounts availing payout services.
Lingering Regulatory Concerns
This is not the first time Paytm Payments Bank has faced regulatory scrutiny. In the past year, the RBI had imposed restrictions on the bank, prohibiting it from taking on new customers, and had ordered a comprehensive audit of its IT systems.
Device Binding Control and V-CIP Failures
Paytm Payments Bank was found to be deficient in implementing crucial device binding control measures concerning ‘SMS delivery receipt check.’ Additionally, its V-CIP (Video-based Customer Identification Process) infrastructure failed to prevent connections from IP addresses located outside India.
The Path to the Imposition of Fine
Before the imposition of the ₹5 crore penalty, the RBI had issued a notice to Paytm Payments Bank, seeking an explanation for its failure to comply with the prescribed directions. The decision to fine the bank was made after taking into account the company’s response to the notice.
The penalty levied on Paytm Payments Bank highlights the RBI’s commitment to enforcing strict regulatory compliance in the financial sector. This action underscores the importance of adhering to KYC, cybersecurity, and other vital guidelines to ensure the security and integrity of financial transactions and services in India. Paytm Payments Bank is now tasked with rectifying the identified deficiencies to meet regulatory standards and maintain the trust of its customers and the RBI.
