In the face of the Reserve Bank of India’s (RBI) recent directives, Paytm Payments Bank Ltd. (PBBL), led by Vijay Shekhar Sharma, confronts an existential crisis. Here’s an in-depth breakdown of the unfolding situation.
Background
Vijay Shekhar Sharma, hailing from Aligarh, built Paytm with inspiration from Alibaba’s mobile-centric approach, aiming to enable Indians to make digital payments for various services. A key player in India’s uptake of digital payments, Paytm has since expanded its offerings to encompass stockbroking, the National Pension System (NPS), Paytm First Games, Paytm Insurance, and a mini app store. Its ubiquity and widespread nature has served to cement it as the de facto payment platform for innumerable Indians.
The Current Crisis: The RBI has ordered PBBL to cease most of its business operations, impacting deposit acceptance, credit transactions, and top-ups on various instruments after February 29.
Key Points:
- Ownership: Paytm Payments Bank is an associate of One97 Communications Limited, with Mr. Sharma holding a 51% stake. It commenced operations in May 2017, offering digital banking services, including savings and current accounts, fixed deposits, UPI, and more.
- Recent RBI Action: The RBI’s directive prohibits further deposits, top-ups, and credit transactions from February 29, affecting services such as Paytm Wallet, FASTags, and other instruments.
- Customer Impact: While existing Paytm Wallet users can continue transactions until their balance is exhausted, they won’t be able to add money after February 29. Other PPBL services face similar restrictions.
- Alternatives for Users: Customers have alternatives such as various banks and non-banking entities offering wallet services (e.g., Mobikwik, PhonePe) and authorised banks providing FASTag services (e.g., SBI, ICICI Bank).
- RBI Concerns: The RBI’s scrutiny reportedly stems from money laundering concerns, non-KYC compliant accounts, and questionable transactions, raising regulatory red flags.
- Company’s Response: Paytm is in discussions with the RBI to comply with directives and is assuring users that its financial services beyond PPBL, such as loan distribution, insurance, and equity broking, remain unaffected.
- Financial Impact: Paytm anticipates an impact of ₹300-500 crore on its annual operational profit due to the regulatory intervention.
Market Response: Shares of One97 Communications, the parent company of Paytm, witnessed a sharp decline of 40% in response to the RBI’s actions, eroding market capitalization by ₹17,378.41 crore in just two days.
The unfolding crisis poses a significant challenge for one of India’s prominent fintech pioneers, Vijay Shekhar Sharma, and Paytm Payments Bank, as they navigate regulatory hurdles and work towards compliance with the RBI’s directives.
In a Box
Stock Exchange Trading Limits Halved as RBI Scrutiny Intensifies
In the wake of RBI restrictions, Paytm experiences a 50% reduction in daily trading limits on BSE and NSE, with a staggering $2 billion valuation plunge. As regulatory scrutiny heightens, Paytm’s market worth tumbles to $3.7 billion, marking a $2 billion decline and raising concerns about the future of Paytm Payments Bank’s operating license. The RBI contemplates license cancellation amid persistent non-compliance, and Paytm’s CEO Vijay Shekhar Sharma assures commitment beyond February 29 while addressing reputational concerns and market challenges. Jefferies downgrades Paytm’s stock, highlighting potential EBITDA impacts and revising the target price, signalling a period of uncertainty for the fintech giant.
