Morgan Stanley To Closely Monitor RBI’s Action On Paytm

SUMMARY

The RBI has asked Paytm to reapply for its online payment aggregator licence

This has increased regulatory uncertainty for the company, says Morgan Stanley

Paytm has been barred from onboarding new online merchants for the time being

Global leader in investment banking Morgan Stanley will be closely monitoring the recent actions of the Reserve Bank of India (RBI) on Paytm.

Last week, the RBI asked Paytm Payments Services Ltd. (PPSL), a wholly-owned subsidiary of Paytm, to reapply for its licence to be an online aggregator. According to a media statement by Morgan Stanley, this has “increased regulatory uncertainty” for the company.

“Key to track would be required timelines to get necessary FDI approvals,” Morgan Stanley said.

Paytm will now be reapplying for the licence within 120 days. For this, PPSL is required to seek necessary approval for past downward investment from One97 Communications Ltd (OCL) into PPSL, to comply with FDI Guidelines, as mentioned on the company’s blog.

Further, the company has been barred from onboarding new online merchants. PPSL can continue to do business with existing online merchants, for whom the services will remain unaffected.

“We will also continue to onboard new offline merchants and offer them payment services, including All-in-One QR, Soundbox, Card Machines, etc,” Paytm said.

Also, there will be no impact on current Paytm Payment Gateway clients.

In addition to this, Morgan Stanley is also closely monitoring the RBI’s action around final guidelines on digital payment charges and the existing ban on Paytm Payments Bank to onboard new customers.

Paytm Payments Bank Limited commenced operations as a payments bank with effect from May 23, 2017. In March 2022, the RBI directed Paytm Payments Bank Ltd. to stop onboarding new customers.

Prior to that, Paytm Payments Bank approached the RBI, seeking in-principle approval for becoming a small finance bank (SFB) in August 2020. However, it got delayed due to an RBI-directed IT audit. In November 2022 the payments bank received the RBI’s observations on the IT report, the details for which are not shared in the media.

In November 2022, as pre-IPO share owners looked at selling their shares, FIIs such as Bank of America (BofA) Securities and Morgan Stanley Asia Singapore and Societe Generale bought shares in Paytm as part of the bulk deals. The lock in period for pre-offer investors ended on November 15, 2022.