February 1, BENGALURU – In a severe setback to one of the biggest payment companies in the nation, the Reserve Bank of India (RBI) has ordered the Paytm payments bank subsidiary (PAYT.NS), opens new tab to stop taking new deposits in its accounts or popular wallets from March.
According to a person familiar with the situation, Paytm shares fell by 20% on Thursday following the central bank’s action, which may have been a prelude to the company’s license being revoked.
Here are the answers to some frequently asked questions concerning Paytm and its payment bank.

 

WHAT IS THE BANK? WHAT DOES IT DO?

In November 2017, Paytm Payments Bank commenced its operations. It is a specialized banking organization that was granted a license in 2015, the year payment banks were first formed in India.
Payments banks are not permitted to lend money, although they are permitted to take small deposits of up to 200,000 Indian rupees ($2,400). Deposits have to be kept in other banks’ accounts or in government securities.

OWNER OF THE BANK PAYTM PAYMENTS? WHAT LINK DOES IT HAVE TO PAYTM?

Paytm, formerly known as One 97 Communications, owns 49% of Paytm Payments Bank. The founder and CEO of Paytm, Vijay Shekhar Sharma, owns the remaining 51%.
One of Paytm’s most important banking partners is Paytm Payments Bank. For example, money placed into one of Paytm’s well-known digital wallets is kept in the Paytm Payments Bank.
Macquarie Capital claims that the bank has all 330 million wallet accounts belonging to the parent company, meaning that any money held in those accounts is deposited with the payments bank.
In India, digital wallets are widely used for daily payments and allow users to keep money for minor retail purchases.

ACTIONS MADE BY THE RBI? WHAT INSPIRED THE ACTIVITY?

The RBI declared on Wednesday that after February 29th, Paytm Payments Bank will not be able to accept deposits, provide credit services, or enable financial transfers. Although the payments bank does not directly lend money, it does provide credit products from other companies.
The reason for the action, according to India’s central bank, was “persistent non-compliances and continued material supervisory concerns in the bank,” though it did not provide any details.
Due to comparable worries, Paytm Payments Bank was prohibited from accepting new clients in March 2022, but it was still able to conduct business with its current clientele. It has now been instructed to close down the majority of its operations this month.

ACTIONS PAYTM WILL TAKE?

Paytm declared that it would follow the RBI’s instructions right now. It will only work with other banks going forward and cease to function with Paytm Payments Bank.
It projects that its yearly earnings before interest, tax, depreciation, and amortization (EBITDA) will be negatively impacted, in the worst case scenario, by 3 billion rupees ($36 million) to 5 billion rupees.

IMPACT ON THE PAYTM

According to Jefferies, the main factors affecting Paytm’s company would be reputational issues stemming from governance or compliance, and improving regulatory compliance will be the way to address these issues.
According to Macquarie analysts, the RBI’s decision to shut down the Paytm Payments Bank is a bad development that would compound the regulatory burden already placed on Paytm’s operations.

CAN THE BANK MEET OUTFLOWS?

Because Paytm Payments Bank’s deposits are held in government bonds and deposits at other banks, liquidity should be readily available, said a source familiar with the matter. The bank may not need any special liquidity line from the central bank, the source said.