Fintech major Paytm is reportedly looking to invest in a private bank, YES Bank. The deal is said to be under discussion and will only be finalised after Reserve Bank of India’s (RBI) approval.
According to a media report which cited anonymous sources, “The talks are at an exploratory stage and the two parties still have to discuss the structure of the deal with which the RBI will have to be comfortable, given that One97 already owns a stake in a payments bank.”
Institutional investors in a bank are allowed to own up to 5% equity only after RBI’s approval.
YES Bank’s interest in this deal is reportedly based on the opportunity to build low-cost digital franchisee and get an investor with a long-term plan for India. Also, the bank is said to be under pressure to raise more funds because of its increased bad loans provisions.
YES Bank To Power Paytm’s Lending Ambition
Launched earlier this year, Paytm Postpaid enable users to pay for phone recharge, online shopping and more through a credit limit of INR 60K. The feature also has a free credit period of 37 days.
Recently in July, Paytm had partnered with a non-banking financial company (NBFC) Clix Finance to enable digital loans for both its customers and merchants. At the time of the announcement, the company said in an official statement, “Paytm will avail these loans to Paytm customers and merchants in the mode of deferred payment or postpaid and merchant lines facilities.” However, Paytm Postpaid has been going through a rough phase over the past few months.
Through this investment deal, YES Bank could also be included in Paytm’s digital lending business.
Starting this May, a public interest litigation (PIL) against Paytm Payments Bank in the Delhi High Court alleged the company of flouting regulatory norms by offering credit to its users.
“Paytm Payments Bank through the postpaid Wallet is aiding and abetting a deceitful conspiracy with intent to defraud the customers of the bank by high-interest rate loans from a third party which is not authorized by the Reserve Bank of India to act or participate in the business/activities or affairs of the Paytm Payments Bank,” the petition read.
Following this, in August, multiple Paytm postpaid users tweeted about the service being disabled for them. To which, the company later said in a blog post, “Paytm Postpaid is issued by Clix Capital which is a digital lending NBFC. They have been managing huge requests for pending KYCs because of which you may not have been able to access your Paytm Postpaid account. Once KYC is completed, you will be able to use it as before.”
Earlier this month, Reserve Bank of India (RBI) had sought the dismissal of the above-referred PIL against Paytm Payments Bank and said that “a PIL can’t be used as a weapon to challenge the financial or economic decisions taken by the government or the RBI.”