Paytm bank RBI crackdown may just be the start? Banks’ rush for clients set for reckoning
Paytm may just be the beginning.
India stunned investors last month by abruptly suspending most activities of the banking affiliate of Paytm, a once high-flying fintech star that had attracted backing from Warren Buffett and SoftBank Group Corp. While the Paytm case was an extreme example of lapses in customer verification — it allegedly used a single identity document to open thousands of accounts — the crackdown signals growing impatience from authorities.
Hardly a day passes when a bank or fintech firm isn’t fined for failing to properly vet its customers, ensnaring top lenders from State Bank of India to Citigroup Inc. Fed up with the persistent shortcomings, the Reserve Bank of India is likely to get even tougher before Governor Shaktikanta Das steps down this year.
“RBI has enough tools and a penalty is just the beginning,” said Prakash Agarwal, founder of Gefion Capital Advisors. He said the fines serve as a “symbolic warning for more dire measures to come, such as a sledgehammer action taken against Paytm bank.”
Regulatory concerns are rising as lenders rush to open more accounts and mop up deposits to meet the soaring demand for loans in the fastest-growing major economy. Most banks typically outsource the last mile of customer verification to third-party firms or so-called runners, and leakages occur at many points in that largely paper process, according to Ashok Hariharan, chief executive officer of IDfy, which provides client vetting services to banks and fintechs firms in India.
While big banks
