In a notable development, the Reserve Bank of India (RBI) has taken decisive action against Paytm, directing Paytm Payments Bank Ltd. (PPBL) to halt new credit and deposit operations, top-ups, fund transfers, and other banking activities after February 29 this year, as per a press release on Wednesday.
This move follows a comprehensive audit conducted by external auditors, revealing persistent non-compliance and ongoing supervisory concerns within the bank. Consequently, the RBI has implemented stringent measures on PPBL, as stated in their press release.
Customers will now only be able to withdraw their balances from their accounts or other prepaid instruments. Earlier, the RBI had prohibited PBPL from onboarding new customers due to material supervisory concerns until a comprehensive IT audit was completed.
Responding to the RBI's action, Paytm issued a statement on Thursday, February 01, expressing its commitment to promptly comply with the RBI's directives on Paytm Payments Bank. The company anticipates a worst-case impact of ₹300 to 500 crore on its annual EBITDA but remains optimistic about its ability to enhance profitability.
Paytm's Challenges Amid RBI Restrictions
Following the RBI's actions against Paytm Payments Bank Ltd. (PBPL), Macquarie, a prominent global research firm, assesses the potential repercussions on Paytm's extensive customer base and business operations.
Strategic Significance of PBPL: With over 330 million wallet accounts, PBPL plays a crucial role in Paytm's ecosystem. Macquarie suggests that despite the ban on onboarding new customers, Paytm could leverage PBPL's existing customer base, considering the current monthly transacting users (MTU) for Paytm is 100 million.
Limitations on Existing Customers: Existing PBPL customers now face restrictions on essential banking operations such as credit, deposits, fund transfers, UPI transactions, FASTag toll payments (with a 17% market share and 60 million users), bill payments, and wallet usage.
Impact on Customer Retention: The strict restrictions on PBPL are expected to impede Paytm's ability to retain customers within its ecosystem. Macquarie highlights that this limitation could have a profound effect on the sale of payment and loan products, potentially leading to revenue and profitability challenges in the medium to long term.
The research firm underscores that the medium to long-term implications on revenue and profitability could be substantial, emphasizing the importance of monitoring this aspect closely.