Up To Banks To Decide If They Want To Partner Paytm Payments Bank: RBI Dy Guv

As Paytm’s banking unit Paytm Payments Bank tries to find the path ahead after the Reserve Bank of India (RBI) imposed restrictions on it last week, the fintech giant took the centre stage at the central bank’s press conference on Thursday (February 8) post its monetary policy committee briefing.

As investors continue to dump the shares of Paytm, RBI’s deputy governor Swaminathan Janakiraman clarified that the central bank’s action is against Paytm Payments Bank and not the Paytm app itself. 

“Just to clarify, the action is against Paytm Payments Bank and not against the Paytm app. The app is not impacted by our action,” Swaminathan said.

Meanwhile, he also said that it is the prerogative of the banks to decide if they want to forge partnerships with Paytm Payments Bank.

“It is a business decision for other banks (for prospective partnerships with Paytm Payments Bank),” added Swaminathan.

This could soothe some nerves for Paytm which has been witnessing a rout on the bourses. As the press conference unfolded, Paytm shares nosedived and hit the lower circuit. Paring gains made over the past two trading sessions, the stock dropped 10% lower to INR 447.10 on the BSE on Thursday. 

Meanwhile, hinting at Paytm Payments Bank, RBI governor Shaktikanta Das said that the central bank only imposes restrictions proportionate to the gravity of the situation. He added that the central bank imposes “supervisory or business restrictions” in the event constructive engagement does not work and the regulated entity in question does not take effective actions.

“When such constructive engagement does not work, or when the regulated entity does not take effective action, we go for imposing supervisory or business restrictions… Such restrictions are proportionate to the gravity of the situation,” said Das. 

He also said that the central bank’s focus is on ‘bilateral engagement with the regulated entities and ‘nudging’ them to take corrective action in a sufficient time frame. 

Without naming the fintech major, the governor also said that the central bank’s actions are guided by the best interest of systemic stability and protection of customers’ interest. These aspects cannot be compromised, added Das. 

“There is no worry about the system at the moment, here we are talking about a specific institution, a specific payment bank,” Das told reporters. 

On the other hand, Janakiraman, without naming Paytm, said that the RBI takes action on regulated entities after providing them enough time to take corrective measures.

Meanwhile, Das said that individual entities ought to be mindful of such regulatory aspects for their long-term success. He also said that the RBI will continue to ‘encourage and support innovation and technology in the financial sector’.

The central bank will also issue FAQs on the matter later next week, the governor said.

Crisis At Paytm

The crisis at Paytm Payments Bank unfolded after the RBI on January 31 prohibited the payments bank from taking deposits, credit, or processing top-up transactions in its customer accounts for ‘persistent non-compliances’. It also barred it from processing other banking services like UPI facilities and fund transfers after February 29, 2024.

While there is no clear clarity on the impact of the RBI’s diktat on Paytm, the fintech giant, in an exchange filing, said it anticipates the restrictions to impact the company’s annual EBITDA by about INR 300-500 Cr.

The RBI’s press conference comes days after Paytm founder and chief executive officer (CEO) Vijay Shekhar Sharma met finance minister Nirmala Sitharaman and other officials of the central bank to seek extension for the February 29 deadline and more clarity on the transfer of the licence of its wallets business. 

Meanwhile, securities depository Central Depository Services India (CDSL) has reportedly undertaken customer verification inspection of the fintech major’s wealth management entity, Paytm Money.