NDTV Profit Exclusive | Sources Say RBI Found Lapses In Paytm Bank
#NDTVProfitExclusive: #RBI found material lapses in #Paytm Payments Bank, as per sources.
Watch for more details. #NDTVProfitLive
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Transcript
00:00 Now, sources have told NDTV profit that the RBI has found material lapses in Paytm Payments
00:06 Bank.
00:07 Sources have also said that the RBI found breaches in the governance standards at Paytm
00:11 Payments Bank.
00:12 We have Vishwarath Nair bringing in these fresh details for you.
00:19 What we do understand from our sources, basically with regard to Paytm Payments Bank is that
00:24 the RBI as part of the audit that it has conducted, the system audit as well as the external validation
00:30 of the system audit, has found material lapses within the accounts of Paytm Payments Bank.
00:36 This has to do with the standard of KYC verification of these customers who are using the Payments
00:43 Bank services as well as of course the Paytm App.
00:47 Essentially, over a thousand users were found to have used the same PAN number to open accounts
00:56 with Paytm Payments Bank and through these accounts they were conducting scrolls of the
01:00 transaction.
01:01 Now, this obviously is a material, material sort of supervisory problem at Paytm Payments
01:08 Bank.
01:09 In terms of the governance standards as well, there were certain concerns that the RBI has
01:15 found, basically that the systems, the financial as well as non-financial systems of Paytm
01:20 Payments Bank and its parent, 197 Communications or Paytm App that we popularly know, both
01:27 of them were co-mingled, as in they were being used interchangeably between the two entities.
01:32 And this is against the licensing conditions of the Paytm Payments Bank.
01:36 Essentially, what the RBI found is that there was no arm's length distance between these
01:41 two entities.
01:42 They are supposed to function as two independent entities and even if there is some kind of
01:46 transaction that is happening between the two of them, it has to be at an arm's length
01:51 distance.
01:52 It cannot be co-mingled.
01:53 That was a problem.
01:55 What the RBI also found were serious concerns with regard to all compliance reports being
02:00 submitted at Paytm Payments Bank and that was a major, major concern as far as this
02:05 entity is concerned.
02:06 Now, if you remember, just a couple of days ago, the RBI introduced fresh strictures against
02:11 Paytm Payments Bank.
02:12 It has not been allowed to onboard customers since March 2022 and the RBI had asked them
02:18 to fall within compliance over the last 22 months.
02:23 But since the bank had not maintained that compliance standard, what the RBI has essentially
02:27 done is stop fresh deposits after 29th of February.
02:32 The RBI has also ensured that there are no pop-up transactions happening in any Paytm
02:37 Payments Bank account, whether they be linked to the bank account itself or through Fastag
02:42 or UTI or any other transaction that was happening via Paytm Payments Bank, their fresh deposits
02:47 after the 29th of February have been blocked.
02:50 Previously, we have also reported that this is in preparation for the revocation of the
02:55 license of Paytm Payments Bank.
02:57 Considering that these material concerns are present, it looks like the RBI's decision
03:01 in this process were being driven by these concerns that have been raised at the Paytm
03:07 Payments Bank.
03:08 Right, Vashishtha.
03:09 That's actually very interesting information because in the call that was held yesterday
03:14 at 3.30 pm, Paytm's or rather 197 Communications Management clearly said that Paytm and Paytm
03:22 Payments Bank are very separate entities and going ahead how things will function will
03:27 really depend on how things pan out in the next week.
03:31 And what now you're picking up that your sources are telling you that there was no
03:35 arm's length, distance was not maintained with the promoter group comes at a very interesting
03:39 point.
03:40 So is there anything else that you're picking up from your sources?
03:43 Yeah, so Prakriti, all that we know at this point in time is that these are some of the
03:47 concerns that the RBI had.
03:49 Now, first, during the call, the management did say that they are shifting payment services
03:55 to third-party banks.
03:56 Now, remember that 29th February is sort of the deadline for any kind of transaction in
04:01 Paytm Payments Bank.
04:02 And if that 29th February deadline is not met, that is to say that third-party banks
04:07 are not inducted within the ecosystem by 29th February, then that becomes an issue.
04:13 That becomes an issue because then Paytm cannot proof of transactions at all if other banks
04:18 are not coming in.
04:19 Remember that there is a serious reputational risk to Paytm's proofs and that's probably
04:25 why some of the banks which may want to deal with Paytm would be having second thoughts.
04:29 Because if there is a serious supervisory issue and it's not sure how far this runs,
04:35 then the other lenders will be probably hesitant to come in and participate in this process
04:39 with Paytm.
04:40 Right.
04:41 Very difficult time ahead possibly for Paytm.
04:44 Vishy, thanks so much for bringing us those exclusive details.
04:46 We'll come back to you as soon as you hear more.
04:49 For our viewers, let's give you a quick roundup of what Vishwanath Nair has gathered from
04:54 their sources on Paytm Payments Bank.
04:56 Indeed, a big blow.
04:58 We know so far that Arvya has found material lapses in Paytm Payments Bank and that's what
05:03 Vishy, who just joined and gave us those details, has picked up from the sources.
05:08 Couple of things happening here.
05:09 One, concerns over money laundering have been flagged due to the lack of adequate KYC.
05:17 Second, sources have told Vishy that over 1000 users were found to have linked the same
05:22 PAN as well.
05:24 These customers conducted crores of rupees of worth transactions and that's what we are
05:29 picking up from the sources and Vishwanath Nair has already bring those details.
05:33 For our viewers, we are mentioning these details on our screen as well.
05:38 Soon, we have Muralidharan joining us.
05:42 Oh, we just got to know that Muralidharan has joined us with more details on this.
05:48 Murali, we have a big breaking on Paytm Payments Bank for last two days.
05:53 We have been covering it at length.
05:54 Arvya has already imposed additional stringent curbs.
05:58 The stock has also plunged every day in the market.
06:01 How are you seeing this panning out?
06:04 Okay, so two, three things.
06:08 These questions arise.
06:09 It's a little, it is not surprising.
06:12 Something big must have happened when Arvya initially put them under watch and gave them
06:18 a clear warning.
06:19 So the notice that they've given or the 20-29 days that they have given is only for customers
06:26 to adjust.
06:27 You know, that should have been the intention of Arvya.
06:30 Now the second step is in such a situation, under normal circumstances, Arvya would have
06:35 just gone ahead and cancelled the license.
06:38 Now that they've just stopped short of cancelling the license.
06:42 So cancelling the license means that the bank has to shut down the, Paytm has to shut down
06:47 the Paytm bank business.
06:49 Now what are the key issues here?
06:51 One is money laundering.
06:53 The other is the trust.
06:55 The trust part is taken a knock.
06:57 If we can bring Vishwanath Nair back, we will be able to find out from him how Arvya would
07:04 proceed in such cases.
07:06 In the past, we have seen that multiple warnings would have been given and then you would see
07:12 Arvya taking a final action.
07:14 Now the problem here is there are, this is a very different and peculiar case, you know,
07:19 which has come to light.
07:21 And as we say, 1000 users were found to have linked the same PAN.
07:27 Now how many more users have they linked the PAN?
07:30 Who are these users?
07:32 This is a subject of investigation and if there is suspicion of money laundering, I
07:37 think it's going to be very serious.
07:40 Now the second point I would like to make is that the market has clearly recognized
07:45 this risk, you know, which is why consecutively for two days, yesterday the stock was down
07:50 20%, today the stock is down 20%.
07:53 The market knows that something is very seriously wrong and Arvya is not going to tolerate.
08:00 Right Murali, you're absolutely right.
08:01 Arvya's role and how it will proceed from here will be very much important.
08:05 We have Vishy joining us back in.
08:07 Let's try to understand how this is going to pan out for Paytm Payments Bank and what
08:12 role Arvya will also play here.
08:14 Correct, Pragati.
08:15 So, you know, let's try and understand what it is that the Arvya is paying or is, as the
08:21 Arvya is finding out in these audits that it has conducted in Paytm Payments Bank.
08:27 Essentially the money laundering concerns are coming not just from these 1000 odd accounts
08:32 with the same PAN.
08:33 This is one situation, right, where crores of rupees worth of transactions have been
08:37 conducted, that's what sources are claiming.
08:40 But at the end of it all, there are a bunch of dormant accounts at Paytm Payments Bank.
08:44 This is an issue that has been running in the bank for a very long time.
08:49 These dormant accounts, the fear is that these dormant accounts could possibly be used as
08:54 mule accounts for any kind of money laundering transactions.
08:57 And that's another supervisory issue, a major concern as far as the Arvya is concerned.
09:03 Remember that any kind of transactions through prepaid instruments, that's what essentially
09:08 your wallet on the Paytm app is, it's a prepaid instrument.
09:11 There is a limit, there's a very clearly defined limit, if I'm not wrong, it's about 10,000
09:16 rupees that you can conduct, those transactions can be conducted with minimum KYC.
09:21 Just linking your PAN card is considered minimum KYC.
09:24 Complete KYC requires you to link other documents as well so that the bank knows who the customer
09:29 is in its entirety.
09:30 For prepaid instruments, there is this mini KYC sort of system created.
09:35 And what we understand is that these were the accounts where the problems have been
09:40 noted.
09:41 Essentially, people just linking PAN with their account and multiple people linking
09:47 the same PAN account with their bank account, that's leading to serious concerns as far
09:52 as money laundering is concerned.
09:54 Interestingly now, just a little earlier today, the Arvya has actually looked at a
10:00 statement on its website where it says that there have been continuing instances and reports
10:06 of customers falling prey to fraud being perpetrated in the name of KYC updation.
10:12 A lot of people, scamsters are calling customers in the name of KYC updation and looting their
10:17 bank details.
10:18 Now, this is another way of using their bank details for illicit transactions.
10:24 So the person whose bank account is there may not actually be the person committing
10:29 the crime.
10:30 It could be somebody else using their bank account to commit the crime.
10:32 So these are all, of course, in the remit of a criminal investigation that can only
10:38 be done by the police.
10:40 The Arvya does not have powers to look at it from a criminal point of view.
10:43 It can only look at it from a system integrity point of view.
10:46 So that's where the Arvya is going to continue.
10:49 And in case this becomes a bigger issue, then obviously you will see the police or the other
10:54 authorities being brought in.
10:56 Money laundering, of course, is something that the enforcement directorate handles.
11:01 So all of these authorities may be brought in to look into these kind of transactions
11:06 that are happening through Paytm and Paytm Payments Bank account.
11:11 And only they can actually find out who are the criminals at the end of the day.
11:15 As far as the Arvya is concerned, the Arvya is concerned with the entity that is allowing
11:20 these transactions to happen.
11:22 And it can only act against said entity.
11:24 So as we have reported earlier, there is a very good chance that this entire process
11:29 was initiated two days ago in preparation for revocation of the bank license from Paytm
11:33 Payments Bank.
11:34 Paytm Payments Bank, again, remember that Payments Bank as entities have only come in
11:38 about nine or ten years ago.
11:40 So they will need some time to stabilize their operations.
11:46 But this is probably the first instance where the Arvya has moved in to deal with this problem.
11:51 Right.
11:52 Right, Vishy.
11:53 Thanks so much for making us understand that because money laundering is definitely a bigger
11:56 concern now coming over here.
11:58 Let's go back to Murali sir here because he also has something to say.
12:03 And since now Vishy has already explained that what is the likely course going ahead.
12:07 Murali, what do you have to say about this?
12:10 OK, now, see, I don't have much to say at this stage because all that needs to be asked
12:18 and raised and found out is what would be the next course of action.
12:22 If Vishwanath Nair can hear me, my question to him is, will RBI cancel the banking, Payments
12:30 Bank license?
12:31 Now to do that, what steps will be required before they actually cancel?
12:37 That's my first question.
12:38 The second question being, if they cancel, what happens if they cancel the license?
12:42 Now this is as good as shutting down this Payments Bank business, right?
12:47 Because they know very clearly Vijay Shekhar and his colleagues came on the management
12:53 call and they gave a lot of details.
12:55 That is the second part of the question.
12:56 And the third part of the question is, what are the key lessons learned in because FinTech
13:01 is growing in a big way.
13:03 You know, for RBI to control, it becomes tough.
13:07 So how does RBI handle a situation like this?
13:10 This is only one piece.
13:12 Yeah, so Murali sir, the point that you're trying to make is completely valid here.
13:31 So if you're going to ask me about when exactly the RBI is going to cancel the license, that's
13:34 for anybody to guess at this stage.
13:37 But typically, when it's a universal bank or even a cooperative bank, what the RBI does
13:43 is it releases certain business restrictions on the entity.
13:48 It gives the depositors certain time to sort of get their finances in order.
13:54 And then people can sort of claim whatever money they have in their bank account to the
13:59 DICDC.
14:00 These are all steps that will happen much ahead in the future, probably not this month.
14:05 So let's not get into that at this stage.
14:08 But there is, restrictions have already been put.
14:11 What happens after 29th of February is what we need to watch out for.
14:14 How exactly the depositors will be treated at this Paytm Payments Bank, that needs to
14:20 be watched out for.
14:21 As a payment bank, because Paytm Payments Bank is an entity that works with Paytm, which
14:28 is a current transaction sort of an application, the outstanding deposits are not very high.
14:36 It's unlike your bigger banks where hundreds of thousands of crores worth of deposits are
14:42 kept with the bank in long-term fixed deposits.
14:44 So this is more of a current savings account where money is put in and then used immediately
14:50 for transactions.
14:51 So not a lot of balance remains with the bank.
14:53 So from a systemic risk point of view, that may not be that big of a concern.
14:58 What may be of a concern is trust, because the entire banking business rests on trust.
15:04 So if trust gets affected, if trust is questioned, then that becomes an issue and that becomes
15:10 a serious point of contention for the entire system.
15:14 And that's typically what leads to bank runs.
15:18 That's what leads to serious concerns with the bank.
15:20 Those are the problems.
15:22 The second point that you mentioned was with regard to how exactly can the RBI deal with
15:31 the situation?
15:32 Is that what you asked me?
15:35 Yes.
15:36 So what the RBI can do at this stage is purely superficial and warn depositors as to what
15:43 they need to do going ahead.
15:45 At this stage, we do not know if there is any kind of investigative authority being
15:50 brought into this case yet.
15:51 We do not know that.
15:52 As far as Paytm is concerned, they have already started discussing a deal with other banks.
16:05 So as I mentioned earlier, there's going to be a reputation risk and we will see if other
16:08 banks are willing to sign up with Paytm if the regulator has found material governance
16:13 concerns.
16:14 Right.
16:15 Right.
16:16 Now, we are also being joined by my colleague, Harsh, who is tracking the banking sector.
16:23 He is a research analyst and an anchor.
16:26 Harsh, we are coming to you.
16:28 We want to know two, three things you have been tracking and NDTV Profit has been leading
16:34 this coverage, which is one of the biggest stories that has been breaking on NDTV Profit.
16:41 And we know the ramifications.
16:43 But first, Harsh, can you tell us what kind of damage can this do?
16:47 You know, we have seen already roughly 20 percent each on two days, the stock has tanked.
16:52 What kind of damage given the kind of money that people had put in this?
16:56 It was one of the largest issues.
16:58 Can you take the viewers through the background of how much money they raised, what price
17:03 and what's the kind of wealth erosion?
17:06 Absolutely, Murali Sir.
17:08 Thank you for having me.
17:09 So, just for a quick perspective, I'll start with Vishy's closing comments and very correctly
17:17 put.
17:18 Yeah, I think we have lost audio.
17:30 Let me meanwhile go back to Pragati.
17:32 Pragati, would you like to recap to our viewers the kind of, see, what will this mean for
17:41 the users of Paytm?
17:43 How will Paytm users be affected?
17:45 Right, Murali Sir.
17:47 So we've been discussing about it for quite some time and we have so far in the coverage
17:52 as well, we have divided the entire thing that has happened to Paytm Payments Bank into
17:57 two aspects.
17:58 One, the impact on products and the other, the impact on the customers.
18:04 Interestingly as to what other people are thinking, contrary to what they are thinking
18:08 in fact, there will be no impact on customers whatsoever and even Paytm has clarified that
18:14 because a lot of customers have been asking that what will happen to our Fastag, what
18:17 will happen to our QR code.
18:19 All services continue as it is and as Vishwanath has also previously mentioned, February 29
18:25 is the deadline that has been given by the RBI to Paytm Payments Bank to initiate or
18:31 even to initiate and carry out whatever has been told to them.
18:37 In terms of impact on customers, there will be no impact on user deposits and savings
18:41 accounts, no impact on deposits in wallets, Fastags and NCMC accounts and that's what
18:47 we've been clarifying and repeating to everyone.
18:50 There will be no immediate impact on UPI payments as well.
18:53 The QR code that we are supposed to use for payments, it will continue as it is.
18:58 In fact, even if we look at the impact on products, there is no material impact as of
19:03 now because like we mentioned, Paytm Payments Bank has been given that time till February
19:08 29.
19:09 The Paytm Payment Gateway business continues for online merchants.
19:13 Offline merchant network offerings also continue as it is.
19:17 The Fastag also continues, Paytm POS and Soundbox services also continue unaffected.
19:23 Meanwhile, while we have clarified about the impact on products and customers, we have
19:28 Harsh joining us back.
19:30 The connection has been restored.
19:31 So Harsh, Murali sir was asking you about what sort of impact that we are expecting
19:37 based on what Vishwanath has also picked up from the sources.
19:40 Well, yes, absolutely.
19:42 Thanks, Ragati and apologies for dropping.
19:45 Now I'd like to start with the point that Vishy was making right at the end that I don't
19:53 want to dilute the fact that this is a very, very big development.
19:58 But at the same time, for Paytm itself, the impact outside of the sentimental impact on
20:06 customers may not be major from this because Paytm Payments Bank is essentially a 49% owned
20:14 by Paytm Bank.
20:16 So essentially it's a standalone entity and the repercussions with the RBI's enforcing
20:22 is largely on the Payments Bank.
20:25 Of course, with that comes the reputation of Paytm, which comes under question.
20:29 And as Vishy correctly put, the couple of banks which are being considered to replace
20:34 Paytm Payments Bank will really have to have a rethink on whether they will actually want
20:40 to be part of this Paytm infrastructure.
20:44 Where the wealth is concerned, Paytm had raised 20,000 crore rupees in the month of November
20:49 of 2021, two odd years back, and they had raised it at a valuation of 1,50,000 crore.
20:58 The stock price at that point of time, IPO price was 2,150, which investors have never
21:04 seen.
21:05 The IPO was subscribed two times.
21:08 So it was oversubscribed and oversubscribed by quite a bit.
21:13 And thereafter, the stock has actually tanked 77% as of today.
21:19 So we've seen investors lose a large chunk of their wealth.
21:24 And I also want to kind of round off the point by trying to bring some perspective with regard
21:30 to what the management has been saying, Pragati, as well as Murali sir.
21:34 Now what the management has been suggesting largely is that, you know, Paytm Payments
21:40 Bank is fine.
21:42 We are not sure of what the non-violations are.
21:45 If there has been such a big non-violation, then clearly, clearly they have somewhere
21:53 not given the correct commentary.
21:55 And that is a clear concern in my view.
21:57 So that is one other place where there is a concern.
22:01 They haven't been, they have been saying that everything between Paytm and Paytm Payments
22:06 Bank happens at arm's length.
22:08 But here, as per our sources, the transactions are not happening at arm's length.
22:14 In fact, there are transactions which are being laundered and there is also certain
22:18 transactions routed through parent app, which is raising data privacy concerns.
22:24 All of this will again trickle down on Paytm.
22:28 So some of the RBI related impact may not come on Paytm as such.
22:34 But some of the second order impacts will come on Paytm in a very strong way, given
22:40 that a lot of the management commentary has continued to suggest that they don't believe
22:45 there is anything wrong with regard to Paytm Payments Bank, despite all the internal audits
22:50 as well as external audits they have conducted.
22:53 Right.
22:54 Right.
22:55 Right, Harsh.
22:56 Absolutely right.
22:57 Because even though they are saying, the management has been saying that they are separate entities
22:59 altogether, but there are concerns that will boil down on Paytm, especially reputation
23:05 and trust factor like Vishwanath also mentioned before.
23:08 We have Murali sir joining in once again because he has one question.
23:12 So let's take that up quickly.
23:14 Yeah.
23:15 OK.
23:16 Now, one last question to Vishwanath Nair.
23:18 To what extent is this a systemic problem?
23:21 See when Paytm is obviously a very big entity, they've changed and Paytm is a household
23:26 name.
23:27 So Vishy is able to hear me.
23:29 My last wrap up question is, do we see any systemic impact of this?
23:36 If not, it's just a one off.
23:38 Murali sir, hi.
23:40 So the point to be made here is with regard to the systemic impact is again, it boils
23:48 down to the trust factor.
23:49 So if you cannot trust the biggest name in the fintech industry, then who can you actually
23:54 trust?
23:55 And that will weigh on the user's mind that if there is some amount of, you know, I don't
24:03 know a better word in English.
24:04 So if there is some amount of goldmine happening here, then obviously there is a serious concern
24:11 with the rest of the ecosystem.
24:13 Remember that so far, the RBI has not come out with any kind of specific commentary on
24:20 any other entity.
24:21 The only comment that they made is on Paytm Payment Bank and by extension Paytm.
24:26 So whether this results in any kind of trust deficit within the fintech ecosystem, within
24:32 the various other thousands of payment apps that currently exist in India, if there is
24:38 a trust factor, trust issue there, then that will sort of create a serious ecosystem damage
24:46 because people will want to not use those apps to make their payment.
24:50 And that boils down to the fact that then banks have the advantage because banks are
24:54 still running their own apps.
24:57 They, customers can use bank apps to make any kind of transaction.
25:00 So will that lead to advantage for the banking ecosystem?
25:06 That is something that we need to watch out for.
25:08 But definitely if there is an issue with the biggest name fintech, then the entire ecosystem
25:14 does fall under question.
25:15 Right Vishy, thanks so much for bringing us those details as well because clearly it
25:27 may not be a systemic issue right now, but the question of trust definitely comes into
25:33 play.
25:34 A quick 10 second wrap for our viewers on this.
25:37 NDTV Profit brings you the exclusive details on what went wrong with Paytm Payments Bank.
25:42 We had Vishwanath Nair, Murali Sir and Harsh joining us.
25:46 Vishwanath Nair also brought the exclusive details that RBI found material lapses in
25:50 Paytm Payments Bank.
25:52 There were concerns of money laundering.
25:54 That's what sources have told us.
25:56 And RBI also found breaches in the governance standards at Paytm Payments Bank.
26:01 Stay tuned for all the fastest coverage on Paytm Payments Bank.
26:05 For now, it's a wrap on this show.
26:07 I extend my special thanks to Vishwanath Nair, Murali Sir and even Harsh for bringing us
26:13 these details on the coverage.