Shares of One97 Communications. the parent company of Paytm, plunged 20 per cent to Rs 608.80 on the BSE on Thursday after the Reserve Bank of India imposed severe restrictions on the fintech firm's associate Paytm Payments Bank.
This is the second time that the RBI has imposed restrictions on Paytm Payments Bank and effectively curtails it from doing much of its business. In March 2022, Reserve Bank had prohibited Paytm Payments Bank from onboarding new customers.
Paytm said the RBI action is likely to have a "worst case impact" of Rs 300-500 crore on its annual EBITDA (earnings before interest, taxes, depreciation and amortization) going forward.
What are the RBI curbs on Paytm Payments Bank?
Under the latest restrictions imposed by the central bank, no further deposits or credit transactions or top ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC (national common mobility) cards, etc. after February 29, 2024. Only interest, cashbacks, or refunds may be credited anytime.
Customers will be able to withdraw or utilise their balance from their accounts, including savings and current bank accounts, prepaid instruments, FASTags, NCMC cards etc. without any restrictions up to their available balance.
The nodal accounts of One97 Communications and Paytm Payment Services are to be terminated at the earliest, not later than February 29, 2024. Also, settlement of all pipeline transactions and nodal accounts, with respect to transactions initiated before February 29, will have to be completed by March 15.
Nodal accounts are accounts that intermediaries need to maintain, where payments from customers are collected before being transferred to merchants.
How is it likely to impact Paytm operations?
Given the severe restrictions imposed on Paytm Payments Bank, it significantly hampers Paytm's ability to retain customers in its ecosystem and accordingly restricts it from selling payment products and loan products, feels Macquarie analyst Suresh Ganapathy.
"We think revenue and profitability implications in the medium to long term could be significant and remain a key item to monitor," he said.
According to Macquarie, the payment bank housed all the over 330 million wallet accounts. In FASTag toll payments, Paytm has 17 per cent market share and around 60 million users, it further pointed.
Earlier in 2020, the Reserve Bank had restricted HDFC Bank, the country's largest private sector lender, from issuing new credit cards. This ban was partially lifted in August 2021 and all curbs were lifted later in March 2022.
In case of Paytm Payments Bank, the ban on onboarding new customers has been in place since March 2022 and the curbs have only widened now after a comprehensive IT audit by the RBI continued to identify non-compliance, indicating the lapses are "quite material," pointed Ganapathy.
Jefferies analyst Jayant Kharote says the key impact of the RBI move could be on Paytm's lending business, which accounted for over 20 per cent of revenue, if lending partners limit business due to operational or governance risks. The FASTag GMV (gross merchandise value) will be majorly affected and merchants using Paytm Bank are also likely to be impacted, he noted.
"Wallet GMV (5 per cent of GMV) may need to be wound down and FASTag GMV where Paytm is the third largest player will also be majorly affected," said Kharote.
What Paytm plans now?
Paytm Payments Bank is taking immediate steps to comply with RBI directions, including working with the RBI to address their concerns as quickly as possible, the fintech said in a statement.
One97 Communications (OCL) also said that it will be expanding its existing relationships with third-party banks to distribute payments and financial services products.
"OCL, as a payments company, works with various banks (not just Paytm Payments Bank), on various payments products. We now will accelerate the plans and completely move to other bank partners. Going forward, OCL will be working only with other banks, and not with Paytm Payments Bank Limited," it said.
The next phase of the journey is to continue to expand its payments and financial services business, only in partnerships with other banks, OCL added.
It noted that the Paytm payment gateway business (online merchants) would 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, it said.
"OCL will pursue partnerships with various other banks, to offer various payment products to its customers."
Paytm further said that other financial services such as loan distribution, insurance distribution and equity broking, are not in any way related to Paytm Payments Bank and are expected to be unaffected by this direction.
Despite the RBI move, OCL said it expects to continue its trajectory to improve profits. In the latest October-December quarter, Paytm's revenue rose 38 per cent from a year ago to Rs 2,850 crore. The company's consolidated net loss narrowed to Rs 222 crore from Rs 392 crore during the period.
It also tried to allay market rumours and stressed that its founder (Vijay Shekhar Sharma) has not taken any margin loans or pledged any shares that are directly or indirectly owned by him.