The central bank on Wednesday barred PPBL from accepting deposits or top-ups in any customer account, prepaid instruments, wallets, and FASTags, among others after February 29, 2024
New Delhi: Fintech firm Paytm sees an impact of Rs 300-500 crore on its annual operational profit as its customers will not be able to add money to their wallets, FASTags etc. as RBI barred Paytm Payments Bank Ltd (PPBL) from accepting deposits or top-ups in any customer account.
Paytm founder and CEO Vijay Shekhar Sharma said that RBI order is a “big speed bump” and shared that he could not understand the trigger for the move. “On behalf of Paytm, I can say it is more of a big speed bump but it is something that we believe that with partnership of other banks and capabilities that we have already developed, we will be able to see through in the next few days or quarters as the case will be,” he said during an investors call.
The central bank on Wednesday barred PPBL from accepting deposits or top-ups in any customer account, prepaid instruments, wallets, and FASTags, among others after February 29, 2024.
Till then, customers can add money as well as withdraw money from the Paytm wallet and PPBL account.
Sharma said, going forward, One97 Communications Ltd (OCL) will be working only with other banks, and not with PPBL.
“As you saw the letter that is publicly available and there is another letter that the bank has received, based on that I cannot foresee what we did not see? There are obviously RBI beliefs and we totally are believing in the fact that there is something that RBI would have seen. Have they sent us details? Answer is no. They have not sent us any details. We do not know the exact nuance,” Sharma said.
RBI said the action against PPBL followed a comprehensive system audit report and subsequent compliance validation report of external auditors.
“OCL has already been working with other banks since the last 2 years especially when embargo had come to the Payments bank. We continue to decline and decrease slant wise dependency on Paytm Payments Bank,” Sharma said.
OCL, which owns Paytm brand, holds a 49% stake in PPBL but classifies it as an associate of the company and not as a subsidiary.
“Depending on the nature of the resolution, the company expects this action to have a worst case impact of Rs 300-500 crore on its annual EBITDA going forward. However, the company expects to continue on its trajectory to improve its profitability,” Paytm said in a regulatory filing.
The company has said that it will move services being offered through PPBL and Paytm Wallet — which is part of PPBL — to other partner banks.
The Paytm management denied any consideration of hiving off the wallet or any structural changes in PPBL.
“We currently are very focused in making sure that the management of PPBL is fully in compliance with the directions of RBI and once they have executed directions, they then obviously seek guidance for next step from there on,” Paytm President and COO Bhavesh Gupta said.
He said the discussions are on with RBI to offer alternatives to users of some of the products like FASTags that are affected by the order.
Gupta said that Paytm has already been offering FASTags that are linked to other banks but the company will need regulatory guidance before making any changes in the offerings.
He said that besides FASTags users, merchants and personal loan borrowers who were making repayments of their loans through PPBL accounts are affected by the order.
The company is working on resolving this issue in partnership with other partner banks and will pause issuing new loans for about a couple of weeks after which it expects to have sorted the issue around repayment.
“We will not be originating loans for, maybe, a couple of weeks before we solve for the operational challenges and then we go back to normal,” Gupta said.
Paytm executive director, President and Group CFO Madhur Deora said that around 60,000-70,000 merchants may have been impacted by the order and less than that are personal loan customers.
RBI has ordered PPBL to settle all pipeline transactions and nodal accounts (in respect of all transactions initiated on or before February 29, 2024) by March 15, 2024 and no further transactions would be permitted thereafter.
On March 11, 2022, RBI had barred PPBL from onboarding new customers with immediate effect.
Earlier, Indian Highways Management Company (IHMCL), the arm of NHAI, had barred PPBL from issuing fresh FASTags after it found that the payments bank was not following the parameters prescribed in the service-level agreement.
The company said that its financial services such as loan distribution, insurance distribution and equity broking, are not in any way related to PPBL and are expected to be unaffected by this direction.
“The company has been informed that this does not impact user deposits in their savings accounts, wallets, FASTags, and NCMC accounts, where they can continue to use the existing balances,” the filing said.
The Paytm Payment Gateway business (online merchants) will continue to offer payment solutions to its existing merchants.
“OCL’s offline merchant payment network offerings like Paytm QR, Paytm Soundbox, Paytm Card Machine, will continue as usual, where it can onboard new offline merchants as well,” the filing said.
RBI also said the ‘nodal accounts’ of OCL and Paytm Payments Services (PPSL) are to be terminated at the earliest, in any case not later than February 29, 2024.
The filing said that OCL and PPSL will move the nodal to other banks during this period. “OCL will pursue partnerships with various other banks, to offer various payment products to its customers,” Paytm said.
