KYC challenge for financial institutions

 

On March 11th, the Reserve Bank of India barred Paytm Payments Bank from onboarding new customers with immediate effect. Without elaborating, the RBI said it observed ‘material supervisory concerns’ in the bank.

 

The regulator also ordered a comprehensive audit of Paytm Payment Bank's IT systems. Vijay Shekhar Sharma holds a 51% stake in the bank and One97 Communications 49%.The restrictions mean users cannot sign up for new Paytm wallets or Paytm Payments Bank savings and current accounts.Meanwhile, sources told Business Standard that RBI’s action was primarily owing to violations of KYC and anti-money laundering norms.The bank faced a similar action in 2018 after RBI found that it had violated KYC norms while onboarding users.Banking industry experts said the RBI had been strict in this regard in view of the Financial Action Task Force country review, which is coming up this year or early next year.Paytm has denied a news report from Bloomberg that said RBI found Paytm Payments Bank's servers were sharing information with China-based entities that indirectly own a stake in the firm.In the past, RBI has levied monetary penalties on banks for non-compliance with KYC rules.

 

Earlier this month, three cooperatives faced penalties while in September 2021, Axis Bank was fined 25 lakh rupees.Recently, fraudsters used the PAN number of several people to avail instant loans from the Dhani app.

This has highlighted the need for stronger KYC checks.

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