What’s In Store For Paytm Beyond The RBI’s March 15 Deadline For PPBL?

Around the middle of January 2024, fintech juggernaut Paytm was on a high. The narrowing of losses in the the third quarter (Q3) of the financial year 2023-24 (FY24) had won it rave reviews and thumbs up from brokerages. 

The market was bullish about the fintech major. But then came the fateful day of January 31 and all hell broke loose for Paytm Payments Bank, with Paytm emerging as a collateral damage. 

The Reserve Bank of India (RBI) issued an order barring Paytm Payments Bank from undertaking any deposits or credit transactions, or top-ups in any of its customer accounts. It also prohibited the payments bank from offering any other banking services, such as UPI facility and fund transfers post February 29, 2024. 

As confusion and chaos prevailed among the customers of the bank, the RBI extended the deadline to March 15 to ensure users have enough time to migrate their accounts and look for alternate offerings. 

With the RBI’s curbs on Paytm Payments Bank set to kick into effect within a few hours, let’s delve deeper into what the curbs on Paytm Payments Bank actually entail.

What Will Work & What Won’t?

Firstly, users will not be able to make deposits and transfer funds to their savings or current accounts with Paytm Payments Bank post the deadline. However, the account holders will be free to withdraw the money or transfer funds to other accounts or use their debit cards after March 15.

In addition, the accounts holders with the payments bank will not be able to avail subsidies or direct benefit transfers (linked with Aadhaar) after March 15. Auto payments and other debit mandates (such as monthly OTT payments and automated electricity bill payments) will continue to work till available balance. 

For the payments bank’s wallet holders, funds will be available for withdrawal and transfer to other bank accounts even post March 15. However, they will not be able to top-up the wallets or receive funds post the stated deadline. 

Besides, merchants who accept payments using a Paytm QR code, a Paytm Soundbox device or a Paytm POS terminal (linked to a non-Paytm Payments Bank account) will continue to process transactions post March 15.

Meanwhile, top-up or recharges will not be permitted in Paytm Payments Bank-issued FASTags and National Common Mobility Cards (NCMCs) post the deadline. However, users will be free to exhaust the remaining balance of these cards after the last date.

While all of these deadlines are centred around March 15, Paytm Payments Bank has been barred by the RBI from onboarding any new customers since at least March 2022. It was the extension of this fallout and a long list of issues that led to the issuance of RBI’s diktats.

Delving Into The RBI’S Crackdown

The crackdown came largely in response to the payments bank unheeding the RBI’s warnings to plug the gaps in its internal risk management. 

While early reports said that the RBI had cited material supervisory concerns for the restrictions, subsequent reportage also said that the central bank had raised concerns over lax due diligence process for onboarding politically exposed persons (PEPs). 

The fintech juggernaut’s arm was also said to have lacked adequate systems for monitoring PEPs and failed to properly file suspicious transaction reports (STRs) with the financial intelligence unit. However, Paytm Payments Bank called the report “highly speculative”.

Eventually, the Financial Intelligence Unit-India (FIU-IND) imposed a fine of INR 5.49 Cr on Paytm Payments Bank for failure to put in enough internal safeguards to report suspicious transactions in contravention of anti-money laundering laws.

Even RBI deputy governor Swaminathan Janakiraman, without naming Paytm, said that any action on regulated entities is taken only after providing them enough time to take corrective measures.

The Bolt From The Blue

The RBI’s curbs on Paytm Payments Bank had a big impact on the fintech major, both on financial as well as on goodwill fronts. The biggest quantifiable impact was on Paytm’s stock price, which has more than halved post the announcement of the RBI action on the payments bank.  

Following the announcement of the RBI’s curbs, Paytm parent One97 Communications’ stock hit lower circuit multiple times as investors dumped the shares in droves on the bourses. 

The company even hit its all-time low of INR 318.35 on the BSE on February 16 as confusion deepened over the regulatory quagmire. 

As the course of winds changed for Paytm, brokerages too changed their stance. The likes of Macquarie, Jefferies, Citi, Morgan Stanley, JM Financial, and CLSA either tagged the stock as ‘underperform’ or called for selling it. 

While Macquarie cut the stock’s price target by 57% to INR 275, both Axis Capital and Goldman Sachs have set the price target for Paytm at INR 450. Most cite a potential sharp reduction in revenue once RBI’s curbs come into effect as the reason behind the analysis.

Even Paytm itself conceded that the restrictions will have an impact on its business. Last month, the company, in an exchange filing, said that it projects its annual EBITDA to take INR 300-500 Cr hit following the central bank’s action on its payments bank. Not just this, the company is also said to be mulling layoffs. 

Interestingly, in the filing last month, Paytm said that it was “taking immediate steps” to comply with the RBI’s directions and address the regulator’s concerns. And much appears to have happened on that front. 

Moving The Needle On Compliances

Right after the central bank doled out its diktats, Paytm’s top executive and founder Vijay Shekhar Sharma met RBI officials and even finance minister Nirmala Sitharaman. 

While nothing major materialised out of those meetings, the company undertook some steps to assuage the regulators.

It started with the resignations of independent directors Manju Agarwal and Shinjini Kumar from the board of the payments bank. 

Right after that, the company made new appointments to the bank’s board, including ex-Central Bank of India chairman Srinivasan Sridhar, retired IAS officers Debendranath Sarangi and Rajni Sekhri Sibal, and Bank of Baroda’s former executive director Ashok Kumar Garg. 

Not just this, Sharma also stepped down as the part-time non-executive chairman and board member of the payments bank. The bank also said that it would soon appoint a new chairman.

On top of that, Paytm also said that it would discontinue various inter-company agreements with Paytm Payments Bank. Under this, Paytm also said that the Shareholders Agreement (SHA) of the payments bank would be simplified to support the latter’s governance and independence of its shareholders. 

While all this was happening, Paytm continued to knock on the doors of various regulatory bodies to forge partnerships and create ways to soften the blow by the RBI’s curbs. 

Offsetting The RBI Hit

Owning Paytm Payments Bank enabled the fintech juggernaut to use its own “@paytm” handle and process transactions without the involvement of any third-party banks. But the RBI restrictions forced it to look out for partnerships with other banks to process UPI payments and, in turn, ensure that its payments business would continue without a hitch. 

Realising that the absence of Paytm from UPI ecosystem would further tilt the balance in favour of reigning giants Walmart-backed PhonePe and Alphabet-owned Google Pay, the RBI directed the payments body NPCI to examine Paytm’s request for TPAP licence. 

Eventually, the NPCI granted the TPAP licence to Paytm on March 14. The fintech giant would operate as a TPAP under the multi-bank model, with four banks (Axis Bank, HDFC Bank, State Bank of India, YES Bank) joining Paytm as PSP (Payment System Provider) banks.

Alongside, YES Bank was also onboarded as a merchant acquiring bank for existing and new UPI merchants for the fintech major. 

The nod for TPAP licence also came amid a raging debate over the near total duopoly of foreign-owned PhonePe and Google Pay in the UPI payments space. The dominance was also flagged by a parliamentary panel which sought incentives for local players to compete with these two giants. 

Interestingly, on the other hand, RBI Governor Shaktikanta Das, earlier this month, said that the restrictions imposed on the Paytm Payments Bank would not have any impact on nearly 80-85% users of fintech giant Paytm’s app.

That said, Paytm has had a bumpy ride these past two months as it manoeuvred the regulatory quagmire. With just hours to go for the restrictions to come into effect, Paytm appears to have a new path ahead of itself as it hopes to leave the baggage of its payments bank behind. 

Only time will tell how this journey pans out for Paytm in the long run.