Paytm Calls Report of Data Leak to Chinese Companies ‘False, Sensationalist'

RBI directed Paytm Payments Bank to stop onboarding new customers with immediate effect.

Reserve Bank of India (RBI) on Friday directed Paytm Payments Bank Ltd to stop onboarding new customers with immediate effect, due to certain “material supervisory concerns."

(Photo: Altered by The Quint)

Paytm Payments Bank was barred by the Reserve Bank of India from taking on new customers because it allegedly allowed data to flow to servers abroad and didn’t verify its customers properly, a Bloomberg report suggests.

The RBI, in its annual inspection, found that the PPBL’s servers were sharing information with Chinese entities that indirectly own a stake in the payments bank, the report said, quoting a person familiar with the matter.

The company had also onboarded thousands of clients without adequate know-your-customer (KYC) documentation and the concern was that some of these could have been mules for money laundering, the report added.

Paytm has denied these claims and has called the Bloomberg report "false and sensationalist." It said on Twitter that it is fully compliant with RBI's directions on data localisation.

The stock market price of One 97 Communications Ltd, payments platform Paytm's parent company, fell 12 percent to an all time low of Rs 672 on Monday, 14 March.

This came after the Reserve Bank of India (RBI) on Friday directed Paytm Payments Bank Ltd to stop onboarding new customers with immediate effect, due to certain “material supervisory concerns".

The payments bank, which was slapped with a Rs 1 crore penalty last year for deficiencies in regulatory compliance information, has now been directed by the central bank to appoint an audit firm to conduct a comprehensive system audit of its IT system.

After commanding India's largest initial public offering (IPO) in November, Paytm's shares tanked on debut, erasing more than half of investors' money in less than two months. The share on Monday saw a 65 percent decline from the listing price of Rs 2,150.

'Taking Steps to Comply With RBI Directions'

In a statement, Paytm Payments Bank said that it was taking immediate steps to comply with RBI directions and working with the regulator to recommence the opening of new accounts.

The company promises a seamless experience for existing customers of their payments bank.

"The savings of existing users in their PPBL account, their fixed deposits with partnered banks and the balance maintained in their Paytm Wallet, FASTag or Wallet Card and UPI services are completely safe and functional."

The statement also clarified that any new users coming to the Paytm app can create UPI handles, and link them to their existing account. "However, new users can not, until further notice, sign up for new PPBL wallets or PPBL savings or current accounts," it said.

Meanwhile, CEO Vijay Shekhar Sharma was arrested and later released on bail by the Delhi Police after he allegedly rammed a car into the vehicle of a Deputy Commissioner of Police last month.

Notably, Sharma has a 51 percent stake in Paytm Payments Bank and the rest is held by One97 Communications.

Payments banks work like regular banks but are not allowed to give out any loans or issue credit cards. They also can't accept any fixed or recurring deposits. They were brought in by the RBI to further financial inclusion. Airtel and Jio operate their own payments banks.