Paytm Fallout: RBI's new KYC drill impacting ARC deals
Paytm Payments Bank fiasco, the Reserve Bank of India (RBI) is insisting on KYC (Know Your Customer) compliance for accounts purchased by asset reconstruction companies from banks and non-banking finance companies.
Earlier, asset reconstruction companies (ARCs) would ask creditors selling bad loans for central KYC records, but now the RBI is insisting on full KYC. «When purchasing portfolios from banks/NBFCs, RBI requires ARCs to maintain KYC documents for all accounts. This seems to be a fallout of the Paytm incident,» said an ARC executive.
This additional «mandatory» requirement has increased the burden on ARCs that are not the «originators» of such loans and have acquired «bad loans» from the original lenders — primarily responsible for such KYCs. The onus should continue to be on the loan originator, the executive added.
Gaps in KYC, despite reminders and follow-ups, were one of the major reasons for the central bank to direct Paytm Payments Bank to stop offering banking services earlier this year. Its chief executive, Surinder Chawla, resigned Tuesday, citing personal reasons.
However, unlike other regulated entities, ARCs do not lend or accept deposits and hence compliance level at ARC should be proportional, not the same as applicable to others, the ARC industry says.
Some ARCs are suggesting that the RBI clarify that accounts lacking KYC compliances for the purpose of accountability be mandatorily excluded from the list of those available for sale to ARCs.
After an account turns bad, borrowers often
