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SBM Bank India’s Fintech Partners In A Fix Over KYC Notice


The bank India has 1 Mn+ credit card accounts and only a few thousand of them (users) have been sent a notification to update their KYC details, said an SBM Bank India spokesperson

This came almost a month after the RBI directed SBM Bank (India) Ltd to stop, with immediate effect, all transactions under the Liberalised Remittance Scheme (LRS) 

The SBM Bank India also stopped issuing new corporate credit cards earlier this year and did not share any update with fintech partners on the same

SBM Bank India, the wholly-owned subsidiary of foreign lender State Bank of Mauritius (SBM), has blocked (with effect from March 31, 2023) corporate credit cards issued to some of the customers of its fintech partners, due to KYC issues.

In a statement shared with Inc42, SBM India said, “At SBM Bank India, meeting regulatory requirements is a top priority. This includes a sustained focus on conducting periodic checks and monitoring at the client level, during onboarding and throughout their lifecycle. The Bank has taken decisions for re-KYC on some corporate credit card accounts in line with our commitment to maintaining the most compliant environment.”

SBM India has 30+ fintech partners in India building products across commercial credit card/secured corporate cards, prepaid cards, remittances, and digital lending, among others. The key SBM fintech partners, offering corporate credit cards, which have been impacted are Karbon Card, Happay, EnKash Card, Kodo, RazorpayX, Open card, Velocity, and OneCard.

It is worth mentioning that the Reserve Bank of India (RBI) on January 23, 2023, directed SBM Bank (India) Ltd to stop, with immediate effect, all transactions under the Liberalised Remittance Scheme (LRS) until further directions. The order was based on certain material supervisory concerns observed in the bank.

On January 31, the central bank extended a partial relaxation until March 15, observing that the bank initiated corrective actions and made a submission for relaxation of the restrictions.

“Based on the submission and also to provide relief to the affected customers of the bank, it has been decided to partially relax the restrictions by allowing ATM/POS transactions under LRS through KYC compliant internationally active debit cards issued by the bank,” according to the RBI statement.

The founder of a fintech neobank partnered with SBM India, requesting anonymity, told Inc42 that he (the company) received notification from SBM India on March 31 (Friday). Soon after, 150+ customers having corporate credit cards with them were notified.

“There is no notification regarding the consumer credit card holders. Since only the corporate credit cards’ KYC needs to be updated, there has not been much impact. As soon as the KYC is updated, the cards will get unblocked,” the founder added.

An SBM Bank spokesperson told Inc42 that the bank has 1 Mn+ credit card accounts and only a few thousands of them (users) have been sent a notification to update their KYC details.

Fintechs Take A Stand

On March 31, the SBM-partnered fintechs first shared a ‘Downtime Alert’ email with their consumers.

Later, around midnight, the fintechs shared about the card blockage in lieu of re-KYC requirements.

In response to the SBM notice, all fintechs shared support emails with their clients, assuring them of all the support possible.

For instance, Kodo has allowed its clients to use Kodo Pay for all their vendor payments and employee reimbursements. Bank transfers, UPI and QR payments are not affected by this and will stay fully operational. One can also use their personal credit cards and get the amount reimbursed from Kodo once the credit card is operational.

Also, all fintech and SBM Bank’s customer care lines are open to help customers with their queries.

“We received the notice from SBM on Friday, March 31, that all corporate credit cards will be blocked with immediate effect from midnight. We are working round the clock to provide support to our customers,” cofounder of Kodo Card Deepti Sanghi said.

It is expected that the cards will be functional within a period of two to seven days. According to an SBM executive, the re-KYC for most fintech is done at the company’s end only.

“You can contact the respective fintech support to understand the timelines for unblocking the card,” the SBM executive said.

In January, many banks blocked the accounts of their consumers for re-KYC. Some of these banks are State Bank of India (SBI), ICICI Bank, Kotak Mahindra Bank and Axis Bank, and small payments banks like India Post Payments Bank and Paytm Payments Bank.

However, customers complained that despite visiting the branch and submitting KYCs multiple times, the details were not updated and their accounts remained blocked. Interestingly, no such issue has been reported by SBM India customers so far.

Routine Exercise?

According to RBI’s KYC mandate under Section 22 of Banking Regulation Act, 1949, banks are mandated to keep updated records by undertaking periodic reviews.

The periodic updation is to be carried out at least once in every two years for high-risk customers, once every eight years for medium-risk customers, and once in every ten years for low-risk customers from the date of opening of the account or last KYC updation.

Also, the accounts can be temporarily ceased till the time the customer complies with the KYC mandate and updates or shares all necessary information.

However, an executive of one of the corporate firms using both Kodo and Karbon corporate cards said that the blocking of cards was quite unusual, as usually a prior intimation to update KYC is given with a deadline of 30-45 days.

One of the SBM executives said, “Along with RBI’s mandate, all banks have their own internal KYC approval requirements as well which are updated periodically.”

In a bid to understand the matter at length, we tried connecting with SBM Bank’s customer support. Interestingly, the executive on the other side did not have any clear answer to what is exactly happening at the bank and why the cards were being blocked without prior intimation.

“We don’t have any clear details here,” the executive said, after beating around the bush for more than 10 mins.

No New Corporate Credit Cards 

After the digital lending guidelines came into effect in September 2022, SBM India blocked all transactions on prepaid cards (with effect from December 1, 2022) directly funded through loan accounts and credit facilities.

Fintech players then started considering cobranded cards, allowed under RBI’s digital lending guidelines) to stay afloat. Being an active partner bank for several fintech, SBM leveraged its position.  However, it has been refusing to issue new corporate credit cards for a while.

“The immediate re-KYC issue from SBM may have been initiated by internal discrepancies. For the last few months, the bank has also been refusing to issue new corporate credit cards,” said an accounts executive who handles corporate credit cards of his company, requesting anonymity.

Here’s the response that we (Inc42) received when we tried to issue new corporate credit cards via SBM Bank in February 2023.

“HI,

Unfortunately, there are no updates at the moment. We are actively following up with our partner bank to expedite the process. They are currently undergoing a significant CMS migration, which has affected all of their card programs.

Our founder has conveyed this priority to SBM’s senior management. Kindly request your patience in this matter. We apologize for any inconvenience this may have caused.”

We also tried talking to fintech founders and SBM more about this. But everyone is tight-lipped for now.



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