Paytm Crisis: Startup Founders Seek Review Of Regulatory Directive

A group of entrepreneurs has written to Prime Minister Narendra Modi, Finance Minister Nirmala Sitharaman and the Reserve Bank of India (RBI) governor Shaktikanta Das, urging them to “review” and “reconsider” the regulatory directive asking Paytm’s banking unit, Paytm Payments Bank, to bring down the curtain on its key banking services after February 29.

The letter, signed by startup founders, including Murugavel Janakiraman of Bharat Matrimony, Deepak Shenoy of CapitalMind, Ritesh Malik of Innov8, Vishal Gondal of GOQii, Yashish Dahiya of PB Fintech and Rajesh Magow of MakeMyTrip, requested the trio to engage in constructive dialogue with the fintech ecosystem, according to a Moneycontrol report. 

The note said that the RBI’s regulations on Paytm Payments Bank could have far-reaching consequences for the fintech ecosystem. It emphasises the need for a reevaluation of these directives to safeguard the interests of users and merchants associated with Paytm’s banking unit.

The letter also added that the sanctions against Paytm Payments Bank can impact the country’s image as a business-friendly nation.

“Excessively stringent regulations targeting prominent fintech innovators like Paytm Payments Bank could create an impression of inconsistency and unpredictability, potentially deterring potential investors and innovators from entering the Indian market,” the letter read.

The founders called for a review of RBI’s regulatory directions, a timeframe for Paytm Payments Bank to address discrepancies, and open dialogue and collaboration.

The letter, however, received a modest response from the broader Indian fintech and startup ecosystem. Moneycontrol reported that at least four founders chose to abstain, viewing it as a Paytm-specific matter and preferring not to potentially clash with the regulator.

On January 31, 2023, the Reserve Bank of India (RBI) imposed restrictions on Paytm Payments Bank, prohibiting it from accepting deposits, credit transactions, or top-ups in customer accounts. Additionally, the central bank halted other banking services, including UPI facilities and fund transfers, effective February 29, 2024. 

Paytm’s share price experienced a significant decline, hitting the lower circuit on three occasions (Feb 5, Feb 2, and Feb 1). Amidst reports of Jio Financial Services and HDFC Bank considering acquiring Paytm’s wallet business and reassurances from Vijay Shekhar Sharma regarding job security, the company has undergone notable developments following the regulatory action.