RBI takes stringent action against Paytm Payments Bank

Paytm group is not new to RBI’s penal actions. Check Paytm’s track for details.

Earlier in March 2022, RBI had stopped Paytm Payments Bank (PPB) from onboarding new customers due to certain material supervisory concerns. The regulator had then directed the bank to appoint a reputed external auditor to conduct a comprehensive audit of it’s IT system.

Now in consequence to that audit and after engaging with the Company on the results of the audit, RBI has announced very stringent actions.

1. No further deposit and credit transactions or top ups allowed in any customer accounts, wallet, prepaid instrument, FASTags or other PPIs after Feb 29th, 2024.
2. Withdrawal or utilisation of existing balance is allowed without any restrictions.
3. UPI and BBPOU (Bharat Bill Payment Operating Unit) services are allowed.
4. Nodal Accounts of One97 Communications (OCL) and Paytm Payments Services Ltd (PPSL) to be terminated before 29th February, 2024.
5. Settlement of all pipeline transactions and nodal accounts shall be completed by 15th March, 2024 and no transactions permitted beyond.

Effectively the entire business of PPB has been effectively stopped. Please note PPB is different from OCL (the listed Paytm group Company). PPB is an associate Company of OCL wherein, OCL owns 49% and the Paytm founder Vijay Shekhar Sharma (VSS) owns 51%.

OCL, as expected has issued a press release assessing the impact of RBI’s action and the way forward. Key highlights of the same are –

• PPB is taking immediate steps to comply with RBI directions, including working with the regulator to address their concerns as quickly as possible.
• RBI’s action does not impact user deposits in their savings accounts, Wallets, FASTags, and NCMC accounts, where they can continue to use the existing balances. (They will obviously not be able to top it after the mentioned dates)
• OCL, as a payments company, works with various banks (not just PPPB), on various payments products. It will now completely move to other bank partners.
• OCL offers acquiring services to merchants in partnership with several leading banks in the country and will continue to expand third-party bank partnerships. 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.
• With regard to the direction on termination of nodal account of OCL and PPSL, OCL and PPSL will move the nodal to other banks.
• OCL’s other financial services such as loan distribution, insurance distribution and equity broking, are not in any way related to PPB and remains unaffected.
• Depending on the nature of the resolution, the Company expects RBI’s action to have a worst case impact of Rs. 300 to 500 cr on its annual EBITDA going forward. (For ease of reference, OCL’s trailing 12 month reported EBITDA was Rs 2,088 cr)
• OCL has also denied the market rumours that VSS has taken marginal loans or otherwise pledged any of his shares.

Notwithstanding the above, in my personal view the impact of the action on OCL is difficult to ascertain at this juncture as other than the operational headwinds (of not being able to link products with it’s own PPB), it may also mean reputational headwinds (of possible concerns being raised by other tied-up banks/ NBFCs and also the customers).

Better to wait and watch.