Paytm & VSS Boosts Payments Bank With $18 Mn

Paytm Payments bank has received yet another cash infusion from the parent company. Paytm’s parent company One97 Communications and its founder Vijay Shekhar Sharma have together invested $18.84 Mn (INR 122 Cr) in Paytm Payments Bank. This takes their total infusion in the payments bank to $61.78 Mn (INR 400 Cr).

As per ROC filings accessed by ET, Vijay Shekhar Sharma has invested $9.57 Mn (INR 62 Cr), while the rest was put in by One97 Communications and One97 Communications India. Sharma and One97 Communications had initially invested about $33.98 Mn(INR 220 Cr) in the bank, with Sharma owning the majority stake in the payments bank.

The fund infusion follows the September cash raise wherein the Payments Bank had reportedly secured $9.3 Mn (INR 60 Cr) from Sharma and other existing investors. The development came at a time when the firm was gearing up to launch its own debit card.

In that round, Sharma had infused $4.6 Mn (INR 30 Cr) in the bank, while One97 Communications has contributed around $3.5 Mn (INR 23 Cr). According to the company’s RoC filings, the remaining $1.09 Mn (INR 7 Cr) has come from One97 Communications India, a wholly-owned subsidiary of One97.

Paytm Payments Bank: The Journey So Far 

Incorporated in August last year, the Paytm Payments Bank formally launched operations in May 2017. Between August 2016 and March 2017, it reported losses of around $4.6 Mn (INR 30.7 Cr). According to its MCA filings, the firm saw a turnover of $378K (INR 2.47 Cr) during the said period.

Currently, of the eleven entities which received in-principle licences to launch payment banks, only four are operational. These include India Post Payments Bank, Airtel Payments Bank, Fino Payments Bank and Paytm Payments Bank. But even with just four in the fray, these payment banks have not been able to attract too many deposits so far.

A recent report in Bloomberg Quint, based on an RTI request to the RBI, showed that the four payments banks had outstanding demand deposits worth $36.52 Mn (INR 236.45 Cr) only as on September 30. A majority of the demand deposits were with Airtel Payments Bank which had deposits worth $34.6 Mn (INR 224.03 Cr) as of September; Fino Payments Bank, which started operations in July 2017, held deposits worth $1.05 Mn (INR 6.8 Cr), at the end of September. PayTM Payments Bank, which started operations in May 2017, held outstanding demand deposits worth $502K (INR 3.25 Cr) as on September 30.

To put into perspective of how low this amount is, it is worthwhile to note that Paytm’s Payments Bank alone has raised $61.78 Mn cash infusion. This shows that despite huge money being pumped into payments banks, customers are still slow to park their cash deposits in them.

Basically, demand deposits are the funds that customers hold in their savings and current accounts. For universal banks, CASA(Current And Savings Account) deposits from the base of low-cost funds which facilitate cheaper lending. But for Payments banks, RBI has limited demand deposits at $1,544 (INR1 lakh) per account and fixed deposits are not permitted. Also, Payments banks are also not allowed to give loans and are required to park most of the deposits in government securities.

Is it this restriction on deploying deposits which has to mainly be parked in government securities that are making it tough for the business to be profitable? The withdrawal of three out of the 11 recipients – Cholamandalam Distribution Services Ltd., Dilip Shantilal Shanghvi and Tech Mahindra Ltd.-from opening their payments bank might seem that as customer deposits are hard to come by, the uncertainty on profitability remains a question.

While all the four functional payments banks are paying interest starting from 4% by Paytm to 7.25% by Airtel Payments Bank, low deposits show that customer is taking time to warm up to the concept of payments bank as a whole. Nevertheless, Vijay Shekhar Sharma had earlier stated his intentions to reach 500 Mn bank accounts by 2020. As per reports, the bank is gearing up to team up with universal banks to expand the reach of its financial services. Given that the digital payments segment in India is poised to reach $500 Bn by 2020 according to a report by Google and Boston Consulting Group, it seems Paytm is all in to rake in a part of this pie through the Paytm Payments Bank despite early losses and slow mobilising customer deposits.