RBI stops Paytm Payment Bank to onboarding new customers
The Reserve Bank of India has directed Paytm Payments Bank to stop the onboarding of new customers with immediate effect. The RBI has not specified any reason for its actions.
RBI has also directed the bank to appoint an IT (Information Technology) audit firm to conduct a comprehensive system audit of its IT system.
RBI’s action has been taken under Section 35A of the Banking Regulation Act, 1949.
Paytm Payment banks joins a list of financial lenders and companies like Mastercard, HDFC banks, Diner Cards and American Express who have been punished by RBI for system glitches and non compliance in their IT system.
RBI wants to develop a failsafe payment system in India where transactions are mainly done in digital mode.
Paytm Payment Bank
Paytm Payment Bank is a joint venture between Vijay Shekhar Sharma who holds 51% stake in the bank and one 97 communications which holds 39% share in the bank.
The bank started its operation in November 2017.
Headquarters : Noida, Uttar Pradesh
Chairman of the Bank : Vijay Shekhar Sharma
It was the first bank in India to start 24x7 NEFT service in India.
It was included in the second schedule of the RBI act 1934 last year.
Banking Regulation act 1949
The Banking Regulation act 1949 gives power to the RBI to regulate banks in India.
Under the Section 35 A of the Banking Regulation Act 1949, the RBI can give directions to banks:
in public interest or
to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or
in a manner prejudicial to the interests of the banking company; or to
secure the proper management of any banking company generally.
What is customer onboarding in banks
The process by which a customer establishes a relationship with the bank and provides all of the necessary information for the bank to open an account is called onboarding
The bank processes the request and initiates the KYC(Know Your Customer ) verification process by collecting relevant information and performing background checks to validate data.
Once the documentation and regulatory requirements are taken care of, the bank opens the accounts of the customer and provides normal banking service to the customer .
RBI is keen to promote customer onboarding process digitally so as to reduce fraud in the banking sectors.
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