Report: Paytm Bank Closure Was Result of Conflicts of Interest

For Indian regulators, Paytm Payments Bank was apparently too close with its parent company.

The Reserve Bank of India (RBI) this week announced it was suspending business at the bank — an arm of FinTech giant Paytm — after an audit uncovered “persistent noncompliances and continued material supervisory concerns.”

But a report Thursday (Feb. 1) by Bloomberg News goes into more detail about the closure, saying that the regulator’s move came after two years of warnings about the questionable relationship between Paytm and its banking business.

Citing sources familiar with the matter, the report said the RBI audit found that money and data traffic flow between Paytm Payments Bank and the larger company that sparked accounting and supervisory problems.

Sources said the RBI had warned Paytm about such issues but they were not resolved. In addition, the regulator was also concerned by an overlap in management at the bank and the rest of Paytm, with the same executives making decisions on behalf of both organizations, leading to potential conflicts of interest.

PYMNTS has contacted Paytm for comment but has not yet received a reply.

While Paytm can appeal the ruling, the sources say the RBI’s position is that it wants the company to no longer operate a payments bank.

A separate report by Reuters Thursday notes that Paytm’s shares fell 20% following the RBI decision, with one source saying the company’s license could be canceled.

Paytm Payments Bank first ran afoul of the RBI when the regulator ordered the company to stop accepting new customers, pending the audit.

In October of last year, the regulator fined Paytm Payments Bank for noncompliance related to know your customer (KYC) regulations, saying the bank failed to identify the beneficial owners of organizations using its payout services, and also failed to monitor payout transactions and carry out risk profiling of these customers.

The RBI also said Paytm Payments Bank violated the regulatory ceiling of end-of-the-day balance in certain customer advance accounts that were using payout services and that the company had delayed reporting a cybersecurity incident, raising questions about the bank’s ability to sufficiently deal with security threats.