iifl-logo-icon 1
IIFL

Invest wise with Expert advice

By continuing, I accept the T&C and agree to receive communication on Whatsapp

  • Open Demat with exclusive Advice & Services
  • Get a dedicated Relationship Manager to help you grow your wealth
  • Exclusive advisory on 20+ trading & wealth-based investment options
  • One tap Investments, Automated trading & much more
  • Minimum 1 lakh margin required
sidebar image

RBI Ramps Up KYC Scrutiny: Banks, Fintechs Brace for Tougher Measures

19 Mar 2024 , 10:35 AM

Paytm may only be the start for Indian regulators looking to take action against any financial industry malfeasance.
The sudden suspension of the majority of the operations of Paytm's banking subsidiary, a once-flying fintech star that had drawn support from SoftBank Group Corp. and Warren Buffett, startled investors last month. Even though the Paytm case—which purportedly utilized a single identity paper to open thousands of accounts—was an extreme example of a customer verification failure, the authorities' frustration is evident in their ongoing crackdown.

It is almost impossible to find a day when a bank or fintech company isn't penalized for neglecting to thoroughly screen its clients, entwining leading lenders like Citigroup Inc. and State Bank of India. Before Governor Shaktikanta Das retires this year, the Reserve Bank of India is expected to become even more strict due to its ongoing deficiencies.

'A fine is just the start for the RBI; they have plenty of tools at their disposal,' Gefion Capital Advisors founder Prakash Agarwal stated. 'Symbolic warning for more dire measures to come, such as a sledgehammer action taken against Paytm bank,' he said of the penalty.

As lenders scramble to open new accounts and scoop up deposits to fulfill the skyrocketing demand for loans in the major economy that is expanding at the quickest rate, regulatory concerns are developing. Ashok Hariharan, CEO of IDfy, an Indian fintech company that offers client vetting services to banks, says that leakages happen frequently in the last mile of customer verification, which is typically outsourced by most banks to third-party companies or 'runners.' 

Big banks are capable of more, but he noted that working with companies that lack stringent fraud and risk teams might be difficult.
Governor Das of the RBI has issued numerous warnings regarding the necessity of enhancing risk management in banks and shadow lenders. The central bank has serious worries about these shortcomings in client verification, notwithstanding the fact that bad debts have decreased over the past ten years.

The interest of customers and depositors is paramount, Das stated this month during a post-monetary policy briefing. 'The most important thing is to have stable finances.'

Despite increased technological spending by Indian banks to thwart fraud and identify possible money laundering, the number of cases is still on the rise. An RBI data states that from April to September of last year, the number of recorded frauds involving more than ₹100,000($1,205) increased by 68% to over 14,000, nearly double the rate for the preceding six-month period. According to the data, credit card, internet transaction, and deposit fraud instances have increased at the fastest rate.

RBI levied fines of ₹400 Million in the fiscal year that concluded in March, down from ₹650.3 Million the previous year. RBI has the authority to levy a maximum penalty of ₹50 Million for infractions. However, as can be seen on the central bank's website, the frequency of these fines has substantially increased in the current fiscal year. 

According to IDfy's Hariharan, 'people are going to get serious about it now that RBI is getting stricter on KYC.' 'KYC is frequently treated with a frivolous attitude.'

Hariharan claims that customer data has been exploited in the nation. According to him, fraudsters typically pay runners ₹500 for the data they obtain from bank customers' so-called Know-Your-Customer documents. According to him, this enables identity thieves to manage numerous bank accounts from which they obtain funds by tricking victims, mostly via phishing calls.

This month, the RBI not only ordered Visa Inc. to immediately cease a payments service where cards were used to deal with merchants that weren't permitted to accept such payments, but also issued an order targeting banks.
Still, no recent instance has garnered as much attention as Vijay Shekhar Sharma's Paytm.

With the largest-ever $2.5 Billion IPO in India in 2021, the company exploded onto the equity markets, drawing in a who's who of international investors. The Canada Pension Plan Investment Board, Ant Group Co., a major fintech company in China, and Masayoshi Son's SoftBank were also there.

The regulator has been keeping a close eye on its affiliate business, which accepts deposits and provides payment services akin to those provided by PayPal Holdings Inc. The central bank of India banned Paytm Payments Bank Ltd. on January 31 from taking any new deposits into its customers' accounts or mobile wallets after February 29. Hundreds of thousands of clients failed to submit their KYC papers, according to a report by Bloomberg News.

The RBI's action delivered Paytm a severe hit and caused its stock to plummet. The deadline was extended by regulators last week to March 15; in order to clear merchant payments, Paytm is in discussions with additional banks. 

As there are so many connections between banks, fintechs, and other players in the financial system, compliance and accountability are major concerns, according to K.V. Karthik, who oversees Deloitte's financial services division in India. 

For feedback and suggestions, write to us at editorial@iifl.com
 

Can you get cashback or refunds in Paytm wallet after March 15, 2024? - The  Economic Times

Related Tags

  • Banking
  • Paytm
  • RBI
sidebar mobile

BLOGS AND PERSONAL FINANCE

Images
15 Apr 2024   |   12:16 PM
Images
15 Apr 2024   |   10:33 AM
Images
15 Apr 2024   |   09:44 AM
Read More

Most Read News

15 Apr 2024   |   02:27 PM
15 Apr 2024   |   01:53 PM
15 Apr 2024   |   01:52 PM
Read More
Knowledge Centerplus
Logo

Logo IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000

Logo IIFL Securities Support WhatsApp Number
+91 9892691696

Download The App Now

appapp
Knowledge Centerplus

Follow us on

facebooktwitterrssyoutubeinstagramlinkedin

2024, IIFL Securities Ltd. All Rights Reserved

ATTENTION INVESTORS
  • Prevent Unauthorized Transactions in your demat / trading account Update your Mobile Number/ email Id with your stock broker / Depository Participant. Receive information of your transactions directly from Exchanges on your mobile / email at the end of day and alerts on your registered mobile for all debits and other important transactions in your demat account directly from NSDL/ CDSL on the same day." - Issued in the interest of investors.
  • KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.
  • No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account."

www.indiainfoline.com is part of the IIFL Group, a leading financial services player and a diversified NBFC. The site provides comprehensive and real time information on Indian corporates, sectors, financial markets and economy. On the site we feature industry and political leaders, entrepreneurs, and trend setters. The research, personal finance and market tutorial sections are widely followed by students, academia, corporates and investors among others.

RISK DISCLOSURE ON DERIVATIVES
  • 9 out of 10 individual traders in equity Futures and Options Segment, incurred net losses.
  • On an average, loss makers registered net trading loss close to Rs. 50,000.
  • Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs.
  • Those making net trading profits, incurred between 15% to 50% of such profits as transaction cost.
Copyright © IIFL Securities Ltd. All rights Reserved.

Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248

plus
We are ISO 27001:2013 Certified.

This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.

closeIcon

Get better recommendations & make better investments

Invest wise with Expert advice

By continuing, I accept the T&C and agree to receive communication on Whatsapp