Paytm expects up to $60 million hit from RBI action on its payments bank

The Reserve Bank of India (RBI) has ordered Paytm Payments Bank, an associate of One 97 Communications, to stop accepting fresh deposits in its accounts or popular wallets from March, in a major blow to one of the country's largest payments firms.

Paytm will take steps immediately to comply with the RBI's directions, the fintech company said in a statement on Thursday. As a result, it expects a worst-case impact of Rs 300 crore ($36.12 million) to Rs 500 crore to its annual earnings before interest, tax, depreciation and amortisation (EBITDA).

One 97 will cease working with Paytm Payments Bank and start working only with other banks, it said.

 

The company has been informed that the RBI's action does not impact user deposits in their savings account, wallets, FASTags and NCMC (National Common Mobility Card) accounts, where they can continue to use existing balances, the statement added.

The RBI had in 2022 asked the bank to stop adding customers. A subsequent audit revealed "persistent non-compliances and continued material supervisory concerns in the bank", the central bank said on Wednesday, without disclosing details.

The regulator used a legal provision that allows it to act in the interest of depositors, and did not specify a timeline for reviewing the restrictions imposed on the bank.

"For all practical purposes, the above notifications end the operations of Paytm Payments Bank," Bernstein said in a note on Wednesday evening.

"This is a definite negative development and adds to the already heavy regulatory overhang on the business," Bernstein analysts said.

After Feb. 29, the bank will not be able to take fresh deposits, facilitate credit transactions or offer fund transfers, including via India's popular Unified Payments Interface, the RBI said.

However, customers will be able to withdraw or utilise their balances held with the bank, the RBI said.

The RBI will also terminate the nodal accounts of both Paytm and Paytm Payments Services not later than Feb. 29. Paytm Payments Services is a wholly-owned subsidiary of Paytm. Nodal accounts are used to facilitate transactions.

In this regard, Paytm and Paytm Payments Services will move the nodal to other banks, the fintech firm said.

The regulator appears to have concerns about an "arms-length distance" not being maintained between the bank, One 97 and Paytm Payments Services, a source familiar with the matter said, speaking on the condition of anonymity as discussions with the regulator are private.

Persistent concerns

One 97 Communications, widely known as Paytm, is one of India's largest payment firms and counts SoftBank and Ant Financial among its early investors.

It holds 49 per cent in the payments bank, while promoter Vijay Shekhar Sharma holds the remaining 51 per cent, according to the company's annual report for 2022-23. The bank received its license in 2015.

In March 2022, the RBI had ordered a comprehensive audit of the Paytm Payments Bank's systems but had not stopped all fresh business as it has done now.

In October 2023, the central bank fined the bank for failing to do adequate customer due diligence.

Officials from Paytm Payments Bank had met with the RBI earlier this month, the source said.

The bank will seek clarity on if and when these restrictions will be lifted, this person said.

Bernstein said it expects no immediate impact on the payment or loan origination business of Paytm.

"These curbs are going to impact the Paytm platform operations also in the medium term," said Kranthi Bathini, director of equity strategy at WealthMills Securities.