Paytm Bank gets a knock on the door from ED

India’s premier economic intelligence agency, the Directorate of Enforcement (ED), has been roped in to check for suspected breaches at Paytm Payments Bank on a reference from the Reserve Bank of India (RBI), two officials aware of the development said.

The ED, which investigates money laundering and foreign exchange-related breaches, has started a preliminary inquiry into the affairs of the company. It was yet to register an enforcement case information report as of Monday, one of the two officials cited above said.

For now, the ED and the Reserve Bank of India (RBI) are the only agencies looking into the issue. If any other agency’s assistance is required, RBI can ask for it, but the government will not interfere, the person said. “The ED enquiry is to find the facts about the concerns raised by the RBI and to address any deficiency. There is no witch hunt,” the person added.

The second official quoted above said that compliance breaches are matters that sectoral regulators deal with directly, not the government. “This is a regulator’s job and they are up to it. RBI has taken action in customer interest. ED has also sought documents on Paytm from RBI, and is studying it for any violations. There is a mechanism of sharing of information among regulators, and information (on Paytm Payments Bank) has already been shared and different agencies are examining them,” said the person.

Queries emailed on Tuesday to the spokespersons of the finance and corporate affairs ministries and RBI were unanswered till press time.

A spokesperson for Paytm replied to a query from Mint saying the company will comply with requests for information from regulatory authorities on matters pertaining to One97 Communications Ltd and its associate, Paytm Payments Bank.

“We may be asked to furnish information and explanations by different regulatory and law enforcement authorities, including ED, and we have always complied with the requirements dutifully by furnishing the requisite information and explanation,” the spokesperson said.

On 31 January, RBI had restricted Paytm Payments Bank from making credit transactions or taking further deposits or top-ups in customer accounts, prepaid instruments, wallet and FASTags after 29 February.

The central bank had pointed out that a comprehensive system audit report and subsequent compliance validation report of external auditors had revealed alleged “persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action”.

The restrictions on deposits on customer accounts do not apply to interest, cashbacks or refunds, which may be credited anytime.

RBI has already ruled out a review of its decision in the case of Paytm Payments Bank. The second person cited above said further regulatory options will be explored by RBI after 29 February. Paytm Payments Bank has more than 300 million wallet users and over 30 million accounts.

Experts said compliance and corporate governance surrounding startups are emerging as a major issue for the government to deal with as the country is now home to the world’s third largest startup ecosystem.

“Many businesses are good in coming out with ideas and in promoting creativity and innovation, but unless they educate themselves about governance principles, roles and responsibilities of directors and legal requirements, they will end up in trouble,” said Manoj Raut, chief executive officer and secretary general of the Institute of Directors, the apex association for directors in India. “A person can be a good driver, but if the rules of the highway are not followed, there will be consequences. India is a growing economy and equity investments are growing, but its sustainability will depend on corporate governance.”

One 97 Communications, a minority shareholder in Paytm Payments Bank, had on 9 February announced the setting up a three-member group advisory panel led by former Securities and Exchange Board of India chairman M. Damodaran and comprising M.M. Chitale, former president of the Institute of Chartered Accountants of India and R. Ramachandran, former chairman and managing director of Andhra Bank.

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