Paytm Payment Bank is being audited by the Reserve Bank of India (RBI) over allegations that it engaged in data sharing with organizations based in China and also failed to have adequate know-your-customer documentation, Bloomberg reported on Monday (March 14), citing an unnamed source.
The data sharing was uncovered during annual inspections made by India’s central bank, according to the source, who had insider information. The information was shared with entities that were indirect stakeholders in Paytm’s banking unit.
Since Paytm Payment Bank is a regulated financial institution, its IT vendor is required to have a service level agreement that segregates the company and its assets from its owners, the source told Bloomberg.
India’s central bank is also concerned that Paytm’s financial division onboarded thousands of new customers with inadequate KYC information, which could have been money laundering operatives, the source said.
During the audit, the bank cannot open accounts for new customers. Paytm shares dropped over 14.7% on Monday morning following the news of the bank’s IT systems audit.
The RBI originally cited “material supervisory concerns” when announcing the audit on Friday (March 11), PYMNTS reported.
See also: RBI Blocks Paytm Bank From Accepting New Customers
Founded in 2010 by Vijay Shekhar Sharma, who owns a 51% stake, Paytm’s parent company One 97 Communications went public in November and raised $2.5 billion in India’s biggest IPO. The company’s share price dropped 27% following its debut and is down over 64% from its issue price.
Paytm said it is cooperating with the central bank and appointed an external auditor in a move to comply with the RBI’s demands. Existing customers won’t be affected by the audit, and overall company operations will carry on as normal. Once the RBI is satisfied with the audit, Paytm Payments Bank can sign new customers and the business can return to normal.
Paytm Payments Bank was launched in 2017 to help Paytm reach the tens of millions of Indians who use mobile phones but do not have formal bank accounts.
Suresh Ganapathy, an analyst at Macquarie Capital Securities, told Bloomberg that the audit wouldn’t likely be a major disruption to Paytm Bank’s business. Still, it could put a snag in any plans the unit had of “upgrading” to a smaller financial institution.
Read more: Paytm Sees Bigger Losses as It Reels From IPO Fallout
For the three months ending Dec. 31, 2021 revenue was up 34% over the previous quarter.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More