Persistent non-compliance led to Paytm action, no systemic worries: RBI

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Persistent non-compliance by Paytm with the regulatory guidelines despite nudges over a period of time ultimately led to the stern action against the fintech, the RBI said on Thursday and also made it clear that there are no systemic worries.

Without disclosing specific details of what led to the action against the fintech, Governor Shaktikanta Das made it clear that Paytm’s lack of compliance to regulations does not pose a systemic threat.

“There is no worry about the system at the moment. Here we are talking about a specific institution, a specific payment bank,” Das told reporters at the central bank headquarters here at the customary post-policy media briefing.

Deputy Governor Swaminathan J said the January 31 action against Paytm Payments Bank, wherein the RBI has barred it from onbaording new customers, and asked to stop services related to deposits, prepaid instruments and e-wallet after February 29, was the culmination of a long series of bilateral engagement.

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“This is a supervisory action on a regulated entity for persistent non-compliance. Such supervisory actions are invariably preceded by months and at times years of bilateral engagement, where we not only point out deficiencies but also provide more than adequate time for them to take corrective action,” the commercial banker-turned-regulator said.

Das said it starts with “nudges” from the regulator for corrective action and sometimes the RBI may give more than sufficient time to an entity to comply, and it is lack of compliance which ultimately leads to the business restrictions order.

The proportionality aspect is taken into consideration before imposing any restriction, Das said, adding, “all our actions are in the best interest of systemic stability and protection of depositors or customers’ interest.

“These aspects cannot be compromised. Individual entities should be mindful of these aspects for their long-term success.”

Earlier in the day, Das’ statement stressed on “good governance, robust risk management, sound compliance culture and protection of customers’ interest” being of paramount importance for the Reserve Bank.

Das said there are a lot of questions and concerns in the minds of people, and the Reserve Bank will be coming out with a detailed FAQ (frequently asked questions) next week which will make things clear.

When asked about the decision to impose the rather strong action of business restrictions, without going for other alternatives like appointing a director on the board as it has done in some cases in the recent past, Swaminathan said an “one size fits all kind of solution may not work in such situations”.

“As a regulator, it’s incumbent upon us to protect the interests of the ultimate consumer and thereby protecting the stability of the financial system,” Swaminathan said.

He was tightlipped about the future course of action, but promised that customers’ inconvenience will be minimized.

When asked about the reasons for the action, specifically if it has been triggered by the ownership structure at Paytm or if it is limited to KYC concerns, Das declined to reveal anything about the “bilateral engagements”.

“The regulations are robust. It is not a case where there was a regulatory deficiency or there was a regulatory correction required. It’s an issue of compliance, compliance with various parameters,” he said.

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