Paytm on Thursday said the Reserve Bank of India’s (RBI) tough strictures against its associate Paytm Payments Bank Ltd (PPBL) could chip away Rs 300-500 crore of its annual operational profit and that it is pausing origination of new loans for now to solve operational challenges emanating from the setback.
On Wednesday, the banking regulator directed PPBL to stop accepting deposits or making top-ups in customer accounts, wallets, FASTTags and other instruments after February 29, though customers can continue to use their existing balances for various transactions.
This came after it observed persistent non-compliance and continued material supervisory concerns. PPBL had more than 30 crore wallet users and three crore bank account holders.
There are also speculations that given the stringent conditions imposed, the apex bank could even cancel the licence of PPBL at a later date.
Money deposited in these wallets was held with PPBL. Paytm will now have to join hands with other banks which will hold the wallets.
``Depending on the nature of the resolution, the company expects this action to have a worst-case impact of Rs 300-500 crore on its annual EBITDA (earnings before interest, tax, depreciation & amortisation) going forward,’’ One97 Communications Ltd (OCL), the Paytm parent, said in a statement.
In the October-December quarter, Paytm achieved an impressive 38 per cent year-on-year (YoY) growth in revenue, reaching Rs 2,850 crore. The company's EBITDA before ESOP showed substantial improvement, surging from Rs 188 crore YoY to Rs 219 crore
In a conference call, the top management of OCL led by chief executive and founder Vijay Shekhar Sharma said that while Paytm is already working with various banks, PPBL is one of them.
He added that after the RBI asked the payment bank to stop onboarding new customers in March 2022, it has been partnering other banks.
``OCL already works various with other banks and PPBL was one of the key banks. From here on we are clear we will work with various other banks and not PPBL. Two years ago, an embargo was placed on onboarding new customers, we had already started to work with banks, and we will continue to decline and decrease dependency on PPB. This is more of a speed bump, but we believe in the partnership of the banks and we will be able to see to the same in the next few days," Sharma said.
OCL president and COO Bhavesh Gupta who was also present in the concall said that the company may have to halt lending for a couple of weeks to sort out operational issues. One of these pertains to the QR codes.
``In offline versions, where you see our All-in-one QR, powered by Paytm Payments Bank, now that QR will need to be changed to any other sponsored bank. This will be a large exercise, the new acquisition will immediately start in a week or two," Gupta said.
For the quarter that ended December 31, 2023, Paytm saw its revenue from financial services and other segments rising 36 per cent over the previous year to Rs 607 crore, driven by personal loans, merchant loans distribution, and increased revenue from the insurance broking business.
However, the insurance broking business and equity broking will not be affected by the RBI diktat, the management clarified.
Further, as the company looks for another bank, the virtual payment address (VPA) of PPBL will also have to be moved to the new partner, Gupta said.
The RBI’s action led to the shares of Paytm hitting the lower circuit at the bourses on Thursday. It settled with losses of Rs 152.20 or 20 per cent to end at Rs 608.80 on the BSE.