PPBL, a subsidiary of One97 Communications Limited, is 51 percent owned by Sharma. Starting operations in 2017, it offers a variety of digital banking services, including savings accounts, current accounts and FASTag. The RBI recently instructed PPBL to stop further deposits, credit transactions and additions on customer accounts after February 29. This move raises concerns about the future viability of the bank.
According to the National Payments Corporation of India (NPCI), PPBL led UPI transactions in December, with Rs 283.5 crore received and Rs 41 crore sent. In the same month, the PPBL app recorded 144.25 crore transactions ₹16,569.49 crores.
So, here’s the lowdown on the latest developments in the startup’s existential threat.
What led to RBI’s Intervention?
The RBI has cracked the whip on irregularities in KYC (know your customer) norms, compliance issues and related transactions. The crackdown stems from concerns about money laundering and questionable transactions involving crores of rupees. Non-KYC compliant accounts and cases of single PANs used for multiple accounts raised red flags.
According to a Reuters report, PPBL came under RBI scrutiny as hundreds of thousands of accounts were found to have been created without proper identification. The RBI has alerted the Enforcement Directorate (ED) and other government agencies regarding the irregularities in PPBL accounts.
Red flags were also raised as there were instances where the total value of transactions in PPBL accounts exceeded crores of rupees, exceeding regulatory limits in minimum KYC prepaid instruments, PTI reported. Sources told the agency that this raised concerns about possible money laundering.
Sources also told the Economic Times that there was a case where an account linked to one Permanent Account Number (PAN) operated more than 1,000 wallets. The major irregularities in KYC procedures exposed customers, depositors and wallet holders to serious risks.
As part of a significant regulatory action, the Reserve Bank of India has ordered Paytm Payments Bank to stop accepting deposits or top-ups in various instruments after February 29.
On his part, in response to the situation, Revenue Secretary Sanjay Malhotra told Reuters that the ED will investigate PPBL if it finds evidence of illegal activities.
“If there are new allegations of money laundering against Paytm by RBI, those will be investigated by the ED as per the law of the land,” Malhotra said. He later also clarified that no law enforcement agencies have yet taken any action against Paytm, the company told Mint.
How Paytm Responded?
Responding to the developments, Paytm’s founder-CEO reassured users about the app’s functionality beyond February 29. In a post on February 2, he appreciated the support and engagement of Paytm users, emphasizing the company’s dedication to serve the nation fully in line with focus. on payment innovation and financial inclusion.
In several statements, the company said the Paytm management is in ongoing discussions with the RBI to comply with directives.
On the ED probe, Paytm said they operate with the highest ethical standards and were not the subject of a money laundering probe, PTI reported.
The company on February 5 dismissed reports of an investigation or violation of foreign exchange rules by the company or its associate PPBL and termed the recent media reports as completely misleading, baseless and malicious.
The company in an exchange filing said, “The company submitted a specific clarification yesterday, categorically denying any inquiry by the ED into OCL, our partners and our management. We have since seen additional media reports making baseless speculations about inquiries by the Company or its associate PPBL for violation of currency rules”.
“We would like to reiterate that the Company and its associate Paytm Payments Bank Limited are not the subject of any such investigation. Such media reports are completely misleading, baseless and malicious which harm the interests of all our stakeholders,” the company said.
Financial Troubles: Company Takes Hit-After-Hit
Paytm’s share price recovered sharply on February 6 after a 9 percent fall in early trade amid heavy volumes traded on the stock exchanges. Shares of Paytm were trading over 5 percent higher on the BSE.
In the open trade, Paytm shares plunged as much as 9.77 percent to a record low of ₹395.50 each on the BSE. However, it saw a steep recovery of more than 19 percent from the low and traded in the green.
According to reports, over 68 lakh shares of One 97 Communications, the parent company of fintech giant Paytm, or 0.1 percent stake, are worth. ₹269.4 crore changes hands at an average price of ₹394 per share at the stock exchanges today. Paytm’s share price fell 39 percent in one week.
The RBI crackdown caused Paytm’s stock to fall. A sharp decline in shares of Paytm parent One97 Communications Ltd saw the company lose 36 percent from January 31 to February 2, 2024.
The free fall eroded market capitalization by ₹17,378.41 crore in two days. Paytm d it anticipates an annual operating profit impact of ₹300-500 crores.
One 97 Communications (Paytm) share price extended losses for the third straight session, hitting its 10 percent lower circuit on February 5 at ₹438.35, also its record low on BSE. This came after the stock had already crashed 36 percent in the previous 2 sessions.
The stock was 56 percent off its 52-week high and nearly 80 percent below its IPO price of ₹2,150 on February 5. Meanwhile, the stock shed more than 42 percent in the 3 sessions of February alone after a nearly 20 percent gain in January. In the last year, the stock is down more than 7 percent.
Most notably, Warren Buffett’s Berkshire Hathaway, which spun out listed fintech company One 97 Communications, the parent company of Paytm in an open market transaction last year appears to have made bank. The transaction, which took place through a wholesale deal, was two months before the RBI’s action.
In November 2023, Berkshire Hathaway sold its remaining 2.46 percent stake in Paytm (it sold some stake during the company’s IPO in 2021) for ₹1,371 crore to Ghisallo Master Fund and Copthall Mauritius Investment. Ghisallo bought 4,275,000 shares, and Copthall had 7,575,529 shares. The deal was struck ₹877.2 per share. Global investment bank JP Morgan helped execute the deal.
During the IPO of One97, Berkshire Hathaway pocketed ₹301.70 crore, selling at ₹2,150 per share. Put together, the company made a total ₹1,672.7 crore from its investment in Paytm, essentially booking a loss of approx ₹507 crore, Mint reported. Some of Paytm’s prominent backers, such as SoftBank and Ant Group, among others, have cashed out of the company in recent times.
Client side: Problems, alternatives and deadlines
While users can switch to other wallets, services such as loan distribution, insurance and stock trading are considered unaffected. Paytm’s offline merchant offers will continue as usual.
Paytm has assured users that its UPI service will work without interruption, collaborating with other banks to implement backend changes for uninterrupted service, following the recent restrictions, the company has assured that users do not need to take any further action.
Paytm said the RBI order also does not affect user deposits in their savings accounts, wallets, FASTags and NCMC (National Common Mobile Card) accounts, and they can continue to use the existing balances. However, Paytm’s top management during an earnings call on Thursday said that they are working on a migration plan for users of PPBL, wallet, FASTag etc with other banks.
Customers can use their Paytm Wallet balances till exhaustion after February 29, with no option to add funds. The same restriction applies to PPBL accounts, FASTags and other linked services. Withdrawals and transactions are allowed without restrictions.
With more than 20 banks and non-bank entities providing wallet services, users can explore alternatives such as Mobikwik, PhonePe, SBI, ICICI Bank, HDFC and Amazon Pay. Additionally, 37 banks offer FASTag services, including popular options such as SBI, HDFC, ICICI and Airtel Payments Bank.
Ambani’s Jio to take over Paytm? Not for sale, sources say
Fintech giant Paytm, on February 5, clarified that it is not in talks with any company to sell its wallet. Amid media speculations about the sale of Paytm’s wallet to Reliance-owned Mukesh Ambani’s Jio Financial Services, a Paytm source confirmed that the company is not in talks with anyone for the sale.
According to a report by Hindu BusinessLine, the troubled fintech has been in exploratory talks with a number of companies, including HDFC Bank and Jio Financial Services. So far, there has been no official statement from Paytm on the matter. Mint could not independently verify the claims.
Meanwhile, a PPBL spokesperson refused to give an official statement. “We do not comment on any market speculation. We fully comply with the regulator’s direction, and the team’s effort is to ensure a smooth customer experience with the products offered by PPBL,” INC 42 quoted a company spokesperson as saying.
Political Noise Joins Chorus
Congress spokesperson Supriya Shrinate on February 5 questioned the “inaction” PPBL by the ED despite negative observations from RBI, ANI reported.
“What is the Centre’s stand on the matter? Why has the Paytm Payments Bank been given a long leash for the past seven years? The founder of Paytm Payments Bank is a bhakt of PM (Narendra) Modi, gets selfies with him and publishes advertisements in favor of PM. PM Modi supports Paytm in his election rallies. Why are the agencies staying mum when charges are leveled against PM Modi’s associates? Why is the ED silent?” the Congress leader told ANI.
“The RBI has restricted Paytm Payments Bank and it will not exist after February 29… There are very serious allegations leveled by the RBI. The irregularities started in 2017… Why is the CBI silent when the RBI talks about money laundering in this that case?” Shrinate asked.
Earlier Union Minister Rajeev Chandrasekhar, speaking on the sidelines of the launch of the Digital India Future Labs in New Delhi on February 3, said that being a fintech or technology company does not exempt any entity from regulatory oversight.
According to ET Now, the Union Minister of State for Entrepreneurship, Skill Development, Electronics and Technology said that the regulator has absolute authority to regulate an entity. He was speaking on the sidelines of the launch of the Digital India Future Labs in New Delhi on Saturday.
“A sector regulator has absolute authority to regulate every entity within the sector. The RBI has done that and this is within their competence to do that. Being a FinTech or being a technology company does not absolve anyone from regulatory oversight,” Chandrasekhar. was quoted by Moneycontrol as saying.
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Published: 06 Feb 2024, 11:27 IST