RBI Punished Paytm Payments Bank For Data Leaks To Chinese Firms

Synopsis- However, this is not the first time RBI has taken such an action on the Paytm Payments Bank. Earlier, in 2018 it was prohibited from taking up new customers following an audit by the central bank. The curbs were lifted after six months.

India’s central bank Reserve Bank of India (RBI) has barred Paytm Payments Bank from taking up new customers after the fintech company was reportedly alleged of data leaks to Chinese firms. RBI will be setting the terms of reference regarding an independent technology audit in the matter.

In a precise statement released by the Reserve Bank of India on behalf of Yogesh Dayal, who is the Chief General Manager of the central bank, stated, 

“Reserve Bank of India has today, in the exercise of its powers, inter alia, under section 35A of the Banking Regulation Act, 1949, directed Paytm Payments Bank to stop, with immediate effect, onboarding of new customers.”

Furthermore, the statement added, 

“The bank (Paytm Payments Bank) has also been directed to appoint an IT audit firm to conduct a comprehensive System Audit of its IT system. Onboarding of new customers by Paytm Payments Bank will be subject to specific permission to be granted by RBI after reviewing the report of the IT auditors.”

Towards the end of the statement, citing the reason the central bank notes that the action is based on ‘certain material supervisory concerns’ that were observed in the Paytm Payments Bank.

However, this is not the first time RBI has taken such an action on the Paytm Payments Bank. Earlier, in 2018 it was prohibited from taking up new customers following an audit by the central bank. The curbs were lifted after six months.

Reportedly, Paytm Payments Bank flouted the Know Your Customer (KYC) and privacy rules by allowing the data to flow through the servers of the China-based companies that own stake in Paytm Payments Bank, according to a report by Bloomberg who quoted the people familiar with the matter.

On the other hand, the company denies any such allegations of sharing any data with Chinese companies. Rubbishing the reports, the company posted on Twitter, “A recent Bloomberg report claiming data leak to Chinese firms is false and sensationalist.”

Claiming that all data related to Bank resides in India, it further stated, “Paytm Payments Bank is proud to be a completely homegrown bank, fully compliant with RBI’s directions on data localization.”

Meanwhile, Paytm has also released a statement answering the queries of its customers in order to put a pause on the confusion rising due to the ongoing matter. The statement assures the customers that the accounts of existing people will remain functional and the amount saved in them is safe.

Noting that RBI has directed the fintech to halt the processes of taking up new customers with ‘immediate effect’ through a letter released on March 11, 2022, it said, “We are taking immediate steps to comply with RBI directions. PPBL remains committed to working with the regulator to address their concerns as quickly as possible.”

The statement also mentioned that the company will notify its customers once it is directed by the central bank to go ahead with onboarding new customers. Also, the existing customers may continue to enjoy the services and savings of the users in the Paytm Payments Bank Account, 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.