Paytm India keeps changing

Paytm shares plunged 10% on Monday, falling for a third straight session, hitting a record low of 438.35 Indian rupees (about $5.28), after India’s central bank clampdown last week appeared to have a wider impact than previously expected.

Trading was suspended after Paytm shares fell 10% as local exchanges artificially restricted daily trading. Although Paytm initially expected the RBI decision to have a maximum annual impact on its business of $60 million, the financial services company’s market capitalization fell by about $2.5 billion, or more than 40%, in three days. (Paytm’s market capitalization on Monday was $3.35 billion, well below its $20 billion IPO valuation. More data here.)

The Reserve Bank of India (RBI) last week widened restrictions on Paytm Payments Bank, which processes transactions for financial services giant Paytm, barring it from providing many banking services, including accepting new deposits and credit transactions in its services. In response, Paytm initially said it would terminate business with its affiliates and seek tie-ups with other banks.

However, decoupling Paytm from its affiliate Paytm Payments Bank appears to pose additional technical and perceptual difficulties.

TechCrunch first reported last week that the Reserve Bank of India was considering canceling Paytm’s payments bank license. When Paytm obtained a payments bank license, which allows the holder to offer savings accounts of up to $2,400 to customers, it had to give up its PPI license, which is required to operate a wallet business.

Paytm Payments Bank has over 330 million wallet customers and until the central bank takes back the PPI license, Paytm cannot transfer them to other banking partners. It is unclear whether the central bank will make any concessions before the deadline (February 29), and the central bank has used unusually strong words in punishing Paytm. India’s Hindu Businessline reported on Sunday that Paytm is trying to sell its wallet business.

This isn’t the only other license under threat. Bengaluru-based fintech investor Osborne Saldanha added:

The clear and immediate impact is that Paytm’s payments banking operations will be halted until further instructions are issued by the Reserve Bank of India. However, it is unclear whether the RBI will allow Paytm to resume payments banking operations after complying with the RBI request, as the notification does provide for any remedial provisions. It is entirely possible that the Reserve Bank of India will completely cancel Paytm’s payments bank license. Bear with me if this happens as I can’t decipher conclusively but it seems like Paytm might not even have a payments aggregator license as the payment aggregator license would reside within the payments bank license and Paytm’s payment aggregator application The license has been returned by the Reserve Bank of India.

in last week’s notice. The Reserve Bank of India said Paytm’s “continued” non-compliance with previous orders since March 2022, when it ordered Paytm to stop adding customers to the payments bank, raised regulatory concerns and required further action. The Reserve Bank of India said the audit found irregularities but did not elaborate.

Local media reported last week that Paytm payments bank was rife with money laundering and other issues and that India’s Enforcement Directorate was investigating the company. Paytm has refused to say that any investigation by the education ministry is underway, and at a staff meeting on Saturday, senior Paytm executives assured employees that the issues reported in the media were “old issues” and had been resolved “a long time ago”. first reported.

As we try to understand the full extent of the potential damage caused by the RBI’s preliminary ruling to Paytm, the company has already started losing customers and merchants. As Macquarie analyst Suresh Ganapathy noted during an analyst call last week, many Paytm customers already believe Paytm is dead.

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