New Delhi: A group of entrepreneurs has written to Prime Minister Narendra Modi, Finance Minister Nirmala Sitharaman, and governor of Reserve Bank of India (RBI) Shaktikanta Das urging a review of the regulator's directive that ordered Paytm Payments Bank (PPBL) to cease major banking services after February 29.
As per reports, a letter signed by startup founders included Policybazaar's Yashish Dahiya, Bharat Matrimony’s Murugavel Janakiraman, MakeMyTrip’s Rajesh Magow and Ritesh Malik of Innov 8.
They said the RBI order would have a far-reaching impact on the ecosystem than just on Paytm as a company.
Since the RBI’s order, Paytm Payments Bank has hit the headlines for various compliance lapses and a possible probe from the Directorate of Enforcement (ED). The company has however said there are no ED probes on the company or founder Sharma.
Why action on Paytm Payments Bank?
The RBI directive follows persistent non-compliances and continued material supervisory concerns, the central bank said in a statement. On March 11, 2022, the RBI had barred PPBL from onboarding new customers with immediate effect.
China link to Paytm
Paytm had also come under fire for its backing from Ant Group Co., the fintech leader founded by Jack Ma, particularly as domestic sentiment soured rapidly on Chinese firms. Yet the link to a Chinese company wasn’t a major reason behind RBI’s latest action.
Vijay Shekhar Sharma, the largest shareholder of One97 Communications Ltd., the owner and operator of fintech giant Paytm, has 19.42 per cent holding, while Antfin, an affiliate of China’s Ant Group Co, has 13.5 per cent. One97 Communications, which owns Paytm brand, holds a 49 per cent stake in Paytm Payments Bank Limited but classifies it as an associate of the company and not as a subsidiary.
The bigger issue is Paytm has not been on the good books of the regulator and going forward, their lending partners also could possibly re-look at the relationships”, Macquarie analysts including Suresh Ganapathy said in a note.
On February 6, Paytm CEO Vijay Shekhar Sharma met with Finance Minister Nirmala Sitharaman. Prior to this meeting, other Paytm executives met top representatives from the Reserve Bank of India.
“Given the provisions of the Banking Regulation Act that have been used in this case, it is only logical that the board will be superseded or the licence will be cancelled. It is a matter of time,” a source quoted.
In the course of their thorough verification procedures, RBI and independent auditors found that there were discrepancies in the compliance documentation submitted by Paytm PB. The findings indicated inaccuracy implying non-compliance. The RBI has reportedly shared its findings with the Enforcement Directorate, the Ministry of Home Affairs and the Prime Minister's Office.
One of the reasons for the RBI action on Paytm PB was non-compliance with several norms for an extended period. It was found that KYC compliance was not done in a large number of accounts running into lakhs, PAN validation failures, and, importantly, there were thousands of cases where a single PAN was linked to over 100 customers. In some cases more than thousand customers were linked to one PAN.