In the wake of RBI’s move against ‘Paytm,’ what lies ahead for online money movers? The digital economy in India is at a crossroads, and Getty Images captures it perfectly.
February 1, 2024
Prior to the election, on February 1, 2024, the stock market experienced a cautious shift amidst the unveiling of the budget, reflecting uncertainty in the early hours of trading.
On the flip side, one of the sharpest declines was witnessed in shares of One97 Communications, plunging by a staggering 20%, triggering lower circuit limits. This company operates the payment app ‘Paytm’ and ‘Paytm Payments Bank Ltd.’
With the company’s shares tumbling, the Reserve Bank of India’s intervention against Payments Banks is under scrutiny.
In November 2021, when the company went public, its shares were priced between 2080 to 2150, and on Thursday, the company’s shares plummeted to 609.
What action did RBI take?
The Reserve Bank of India issued a statement on Wednesday, announcing that starting from March 11, 2024, Paytm Payments Bank will not be allowed to onboard new customers.
It was also revealed that detailed audit reports and subsequent external auditor reports had found non-compliance with regulations, leading to increased regulatory scrutiny on the bank.
Under Section 35-A of the Banking Regulation Act, 1949, RBI had issued directives to Payments Banks. According to these, after February 29, no new deposits could be made into the bank accounts.
From March onwards, customers of the bank won’t be able to deposit money into their prepaid instruments, wallets, FASTags, NCMCs, or conduct top-ups.
However, customers can still use their existing savings bank accounts, current accounts, FASTags, NCMCs, etc., and no additional restrictions have been placed on them.
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What did Paytm say?
Jayanth Kharote, an equity analyst at Jefferies India, stated, “Paytm’s share in the wallet business contributes to around 5% of gross merchandise value (GMV). The company will have to consolidate its business.”
In FASTags, the company holds a 17% share of the GMV and is the third-largest player in the country. The decision of RBI not to intervene at the top-up level may reduce the likelihood of customers migrating to other companies in this space, according to Jefferies India’s assessment.
According to Hindustan Times, Paytm stated that by collaborating with recognized third-party banks, it would expand its distribution to distribute payments and financial service products.
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What is ‘Paytm Payments Bank’?
Vijay Shekhar Sharma established Paytm in 2010. At one point, he was counted among the youngest billionaires in the country. He was featured among the initial investors of Chinese billionaire Jack Ma and SoftBank of Japan.
In 2015, RBI granted permission to Vijay Shekhar Sharma along with 10 others to set up Payment Banks.
Paytm Payments Bank was established in 2016 and commenced operations from March 2017. It opened its first branch in Noida.
According to Paytm Payments Bank’s website, it has verified customers of more than 100 million and has issued around 8 crore FASTags. It claims to have more than 30 crore bank accounts.
Paytm Payments Bank cannot accept deposits of more than 2 lakhs. However, it can sell loan products and advertise third-party loan products.