After the strictness of the Central Bank, Paytm will end business with Paytm Payments Bank.


After India's central bank banned Paytm Payments Bank from conducting almost all of its business activities due to supervisory concerns, Paytm on Thursday said it will stop working with its associate Paytm Payments Bank and with other banks. Will accelerate plans for partnership.

The Noida-based financial services firm said it expects its loan distribution, insurance distribution and equity broking operations to remain unaffected by the Reserve Bank of India (RBI) directive, as those businesses have no link with Paytm Payments Bank. The payments bank has 330 million wallet accounts and 30 million bank accounts.

The RBI on Wednesday issued stringent new restrictions on Paytm Payments Bank, which processes transactions for Paytm, effectively ending the bank's operations by barring it from providing several banking services including accepting new deposits and enabling credit transactions. Is done. It also asked Paytm and Paytm Payments Bank to terminate their nodal accounts. Paytm said it will shift its nodal to other banks.

“Paytm Payment Gateway business (online merchant) will continue to provide payment solutions to its existing merchants. OCL's [Paytm’s] Offline merchant payment network offerings like Paytm QR, Paytm Soundbox, Paytm Card Machine will continue as usual, where it can also onboard new offline merchants,” Paytm said in a stock exchange filing.

Paytm said it expects $36 million to $60 million to be wiped off its annual EBITDA in a “worst-case scenario.” It said the next step is to continue expanding payments and financial services, “only in partnership with other banks.”

Some analysts and other industry executives cautioned that Paytm's path to convincing banks to work with it may not be easy. “Lenders have had to be more cautious in their partnerships with Paytm following the RBI action on PPBLs, with the recent announcement of scale-back of small ticket loans, we estimate that with the underlying value per share, Paytm will have 40- There will be 45% negative revenue impact. “The stock is priced at Rs 450, or 41% below the current share price,” Goldman Sachs analysts wrote in a note on Thursday.

One97 Communications, Paytm's parent company, owns 49% stake in Payments Bank, while the rest of the equity is owned by Paytm founder Vijay Shekhar Sharma. A payments bank license allows the holder to provide a number of banking services, although certain restrictions apply. RBI had given final approval to Paytm as a payments bank in early 2017.

Wednesday's restriction comes after the RBI ordered Paytm Payments Bank to stop taking on new customers in 2022, a curb that is still in place. The RBI said the audit found “persistent” non-compliance and “continued material supervisory concerns” that require further action.

“We have seen that it took almost 15 months for the RBI to lift the ban on digital business activities of the largest private sector bank. However, in this case since the first restriction (in March 2022) for onboarding new customers (~22 months have passed), RBI has conducted a comprehensive IT audit and continues to identify non-compliances, Which, in our view, indicates that these shortcomings are “quite significant,” Macquarie analysts wrote in a note.

“Accordingly, we do not see any near-term resolution to these problems and in our view this effectively means that the RBI is indirectly canceling Paytm's PPI (pre-paid instrument) license.”

Analysts at Goldman Sachs said: “Unlike previous instructions, our main concern is that the RBI has so far not commented on possible steps towards resolution, which suggests to us that the instructions may remain in place for the foreseeable future.” Could.”

Jefferies said in a note on Thursday that the RBI order could have a direct impact of 20-30% on Ebitda and “the reputational impact on lending partnerships could be further impacted by 20-25%.” This leads us to cut FY25-26 Ebitda by 45% which will also delay profitability.