Mrunal Manmay Dash

In a huge blow to Paytm Payments Bank Limited (PPBL), the Reserve Bank of India (RBI) on Wednesday barred it from offering all its core services—including accounts and wallets—from March.

The RBI on Wednesday ordered PPBL to stop accepting fresh deposits in its accounts or popular wallets after February 29, 2024, effectively crippling the company’s business.

"No further deposits or credit transactions or top ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024, other than any interest, cashbacks, or refunds which may be credited anytime," Yogesh Dayal, a chief general manager with the central bank, said in a press statement.

While the action is technically not a cancellation of Paytm Payments Bank’s licence, it practically constricts the company’s operations to a great extent.

Road ahead for Paytm

The payment bank currently hosts over 330 million wallet accounts, playing a pivotal role in Paytm's ecosystem. Given the current MTU (monthly transacting users) for Paytm is 100 million and the earlier ban was for onboarding new customers, Paytm could continue leveraging the Paytm Payments Bank Limited (PPBL’s) customer base for selling payments and financial products, said Macquarie, a leading global research firm.

The stringent restrictions imposed on PPBL are anticipated to hinder Paytm's ability to retain customers within its ecosystem. Macquarie emphasises that this limitation could have a profound impact on selling payment and loan products, leading to potential revenue and profitability challenges in the medium to long term.

Paytm said on Thursday that it anticipates a potential adverse impact on its annual earnings in the range of Rs 300 to 500 crore due to the RBI curb.

Paytm's parent company, One97 Communications Ltd. (OCL), announced plans to shift entirely to other bank partners, excluding PPBL.

Shares of Paytm tanked 20 percent in early trade on February 1 following the ban on January 31. Paytm’s stock opened at lower circuit, at Rs 609 apiece, down 20 percent on the NSE compared to the previous session's closing price. On January 31, shares of the fintech player settled at Rs 761 per share.

Road ahead for PPBL customers

Paytm's Payment Gateway business, catering to online merchants, will continue delivering payment solutions to its existing clientele, the firm said. It added that the order does not impact user deposits in their savings accounts, Wallets, FASTags, and NCMC accounts, where they can continue to use the existing balances.

It means, customers will only be allowed to withdraw their balances from their accounts or other prepaid instruments.

OCL's offline merchant payment network services, encompassing Paytm QR, Paytm Soundbox, and Paytm Card Machine, will continue seamlessly. This includes the capacity to onboard new offline merchants in the usual course of operations, the statement added.

“OCL's other financial services such as loan distribution, insurance distribution and equity broking, are not in any way related to Paytm Payments Bank Limited and are expected to be unaffected by this direction,” it added.

Meanwhile, Paytm clarified that PPBL is run independently by its management and board.

“We would take this opportunity to clarify that as per banking regulations, Paytm Payments Bank Limited is run independently by its management and board. While OCL is allowed to have two board seats on the board of Paytm Payments Bank Limited, as a part of its shareholder agreement, OCL exerts no influence on the operations of Paytm Payments Bank Limited, other than as a minority board member, and minority shareholder,” Paytm said in an exchange filing.