India's Paytm is in flux | Tech Crunch

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Shares of Paytm fell 10% on Monday, a third session of decline in a row, hitting an all-time low of 438.35 Indian rupees (or $5.28), as the RBI's clampdown last week had a wider impact than previously expected.

Paytm shares fell 10% after trading was halted after local exchanges imposed an artificial limit on its daily trading. Although Paytm initially anticipated the RBI's decision to have a maximum annual impact of $60 million on its business, the financial services firm lost around $2.5 billion, or more than 40% of its market cap, in three days. (Paytm's market cap on Monday was $3.35 billion, well below its IPO valuation of $20 billion. More numbers here.)

The Reserve Bank of India (RBI) last week widened its restrictions on Paytm's Payments Bank, which processes transactions for financial services giant Paytm, barring it from offering several banking services such as accepting fresh deposits and credit transactions on its services. In response, Paytm initially said it would end business with its subsidiary and seek partnerships with other banks.

However, uncoupling Paytm from its subsidiary Paytm Payments Bank poses additional technical and conceptual difficulties.

TechCrunch first reported last week that the RBI was considering revoking Paytm's payments bank license. When Paytm receives a payments bank license — which allows the holder to offer a savings account to customers of up to $2,400 — it will have to surrender its PPI license, a permit required to run a wallet business.

Paytm Payments Bank has more than 330 million wallet customers and Paytm will not shift them to another banking partner until the central bank returns the PPI license. It is unclear whether the central bank — which has been unusually worded on the penalty on Paytm — will make any concessions before the deadline (February 29). Indian daily Hindu Businessline reported on Sunday that Paytm is trying to sell the wallet business.

And it's not just any other license at stake. As Bengaluru-based fintech investor Osborne Saldanha added:

The obvious, direct impact is that Paytm's payment banking operations will remain suspended until the RBI issues further instructions. It is unclear whether the RBI will ever allow Paytm to resume payment banking operations as per the RBI's requirements as the notification specifies any remedial provisions. RBI is likely to revoke Paytm's payment banking license altogether. If so, bear with me as I can't decipher for sure, but Paytm may not even have a payment aggregator license, as the payment aggregator license resides in the payment bank license and in the Paytm application for the payment aggregator. The license was returned by RBI.

In its notification last week. Paytm's “continuous” non-compliance with an earlier order — from March 2022, when the RBI directed Paytm to stop adding customers to the payments bank — has raised oversight concerns and warranted further action. The RBI said that it found irregularities in the audit, but did not go into details.

Local media reported last week that Paytm Payments Bank has been embroiled in money-laundering issues and India's Enforcement Directorate is investigating the firm. Paytm has denied that the ED is conducting any investigation, and at a townhall for employees on Saturday, Paytm senior executives assured employees that the issues reported in the media were “old” and resolved “a long time ago,” according to TechCrunch First reported.

As we try to understand the full extent of the potential damage to Paytm from RBI's initial ruling, the company has already started bleeding customers and merchants. As Macquarie analyst Suresh Ganapathy pointed out in an analyst call last week, many Paytm customers are already under the impression that Paytm is doomed.

More to follow.





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