India’s Paytm is in flux


Shares of Paytm plunged 10% on Monday, the third consecutive session of declines, touching an all-time low of 438.35 Indian rupees (or $5.28) after the RBI’s clampdown last week looks to have had a more extensive impact than previously anticipated.

The trading was halted after Paytm’s shares fell 10%, the artificial limit put on its daily trade by the local exchanges. Even as Paytm initially anticipated RBI’s decision to have a maximum annual impact of $60 million to its business, the financial services firm has shed about $2.5 billion in its market cap in three days, or more than 40%. (Paytm’s market cap on Monday stood at $3.35 billion, far below its IPO valuation of $20 billion.)

The Reserve Bank of India (RBI) last week widened its curbs on Paytm’s Payments Bank, which processes transactions for financial services giant Paytm, barring it from offering many banking services, including accepting fresh deposits and credit transactions across its services. In response, Paytm initially said it will terminate business with its affiliate and seek partnership with other banks.

However, uncoupling Paytm from its affiliated Paytm Payments Bank appears to engender additional difficulties, both technical and perceptual.

TechCrunch first reported last week that the RBI is considering canceling Paytm’s Payments Bank license. When Paytm received the Payments Bank license – which allows the holder to offer customers a savings account of up to $2,400 – it had to surrender its PPI license, the permit required to operate the wallet business.

Paytm Payments Bank houses more than 330 million wallet customers and Paytm cannot transition them to a different banking partner until the central bank gives it the PPI license back. And it’s unclear if the central bank – which has been unusually strong-worded in its penalty on Paytm – will make any concessions by the deadline (February 29).

And that is not the only other license at stake. As Bengaluru-based fintech investor Osborne Saldanha adds:

The obvious, direct impact is that Paytm’s payment banking operations will be halted until RBI releases further instructions. It is however unclear if RBI will allow Paytm to ever resume payment banking operations even post compliance with RBI’s requirements as the notification does state any remedial clauses. It’s entirely possible that RBI may cancel Paytm’s payment banking license altogether. If that happens, bear with me as I’m not able to conclusively decipher, but it seems Paytm might not even have a payment aggregator license, as the payment aggregator license would have resided in the payment bank license and Paytm’s application for a payment aggregator license was returned by RBI.

More to follow.



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