After a bloody nose, Paytm puts up a brave face

“On behalf of Paytm, this is more of a speed bump, but we believe in partnership with the banks and we will be able to see the same in the next few days,” Sharma told analysts and investors on Thursday.

Shares of Paytm (One 97 Communications) hit the 20% lower circuit on Thursday, a day after the central bank barred Paytm Payments Bank from accepting customer deposits, or top-ups to Paytm wallets, FASTags and mobility cards after 29 February. Paytm said the company will transfer all PPBL accounts to other banks. Sharma said RBI had not sent details to the company separately. However, responding to a question on whether the comments by the RBI were because of the linkages between PPBL and One97 Communications, or its inability to comply with recommendations made by the regulator, Sharma said it was “a mix of both”.

“That the very nature that payments business is significantly carried by the parent meant the bank did have some dependency on Paytm for some of its payments offerings like wallets. We have been able to deliver a lot of comfort, but it seems like they were not completely comfortable.”

“The keyword here is that this is a discussion between Paytm Payments Bank and the central bank,” Sharma added.

Paytm’s chief operating officer (COO) and president Bhavesh Gupta said the business will be back to normalcy by early March.

“There will be some operational changes in the journey, which will take us may be a week or two, before we can kickstart the new business back again and the existing business is just about making sure that the people who have set up their mandates through PPBL account are able to switch to another bank account,” Gupta said.

“The disruption will be there for a couple of weeks and to that extent, we will have an Ebitda impact on our lending business. But we are very hopeful that by early March, we should be back to full normalcy if not earlier,” he added. Gupta also noted that equity broking and insurance remains unaffected because they do this business independently of any relationship with PPBL.

“The lending business has no relationship with PPBL other than the fact that there would be merchants, who may have taken a loan and have their repayments coming from Paytm Payments Bank account, which is not a very large number, but may be about 10-15% of merchants on a ballpark number who would have the repayment setup happening from the PPBL bank account because they were taking settlements there. There, we have to move their settlement accounts to any other bank account that they would like so the repayment can keep coming,” he added.

The central bank on Wednesday ordered PPBL to stop its services stating that ‘Comprehensive System Audit report and subsequent compliance validation report of the external auditors revealed persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action’. RBI also said the ‘nodal accounts’ of One97 and Paytm Payments Services (PPSL) are to be terminated at the earliest, no later than February 29, 2024

In March 2022, the RBI had had directed PPBL to stop onboarding new customers with immediate effect.

Paytm will take steps immediately to comply with the RBI’s directions on Paytm Payments Bank, the fintech company had said in a statement on Thursday. Paytm added that it expects to have a worst-case impact of ₹300 to 500 crores on its annual EBITDA going forward but it expects to continue on its trajectory to improve its profitability.

On the Ebitda loss, Madhur Deora, executive director, president & group CFO said, “I do expect that over time, we will be able to offset this in a big way.”

Paytm has already started the process with banks and merchants to integrate and move customers, Deora said.

Several investors and founders took to social media in support of Paytm. “Shocked to see the RBI action against Paytm. Whatever be the facts of the case, this kind of heavy-handed reaction reduces public confidence in the banking system. Power to Paytm and Vijay Shekhar to emerge from this crisis stronger,” Ritesh Banglani of Stellaris Venture Partners posted on X.