Paytm Karo Ya Nahin? The Inside Story Following RBI Restriction On Paytm Payments Bank

The digital-payment company, Paytm is in focus for failing to implement process changes despite repeated warnings from the Reserve Bank of India about irregularities in banking norms and other transactions and while the company's shares have lost massive value - almost 50%, employees of the distressed company are also looking out for jobs.

While the company has reiterated through statements and new pop-ups on the app that business will run as usual even after February 29, anyone associated with the company, be it investors or employees is finding this situation a matter of concern.

For common people, this could be a threat as many fear losing money from their wallet or Fast tags that are linked to Paytm and for investors, it is a different ball game as the company's stock hits record low.

What Happened On January 31

The central bank of India banned Paytm Payment Bank from performing any banking activities including no deposits, no credit transactions, no wallet top-ups, no bill payments, nothing - after February 29.

According to industry watchers, Paytm Payment Bank which was formed in 2017, just after the demonetization came into effect in 2016, has been given enough time by the regulators to fix the irregularities but the company failed to do so. These irregularities include submitting incorrect compliance reports too, according to media reports.

Employees Looking Out

Job recruiters are overflowing with resumes and job applications from workers of Paytm Payments Bank and its parent firm One97 Communications, after the Reserve Bank of India imposed restrictions on the company to provide any kind of banking services to its customers.

Employees are concerned that there could be further regulatory problems for the digital-payments company.

The new restrictions can be brutal for the company as services can be disrupted and employees fear that there could be pay cuts in the near future, according to a Mint report.

In a virtual town hall last week, the company's founder and chief executive Vijay Shekhar Sharma tried to pacify employees' concerns about the future of the group, which employs about 35,000 people.

What Brokerages Say On Paytm

Jefferies: RBI, in a strong statement, has imposed restrictions on Paytm's payment bank due to non-compliance. The key impact can be on the lending business (+20% of revenues) if lending partners limit business due to operational/ governance risks. Also: a) wallet GMV (5% of total) may need to be wound down; b) merchants using Paytm Bank (6% of devices) may be impacted; c) Fastag GMV will be majorly affected. This can be key risk to earnings/ valuations.

JP Morgan has downgraded its outlook on Paytm to Underweight with a cut in target price of Rs 600 per share.

Morgan Stanley has maintained 'Equal Weight' on Paytm but also trimmed the target price to Rs 690 per share.

What Is Next For Paytm And Its Payment Bank

According to experts, the RBI may give the company an extension to fix the irregularities beyond February 29. It is yet to be seen that what happens to the Payment Bank's license.

Both Paytm's top management including chief Vijay Shekar Sharma have last week tried to restore the faith of users.

At his X handler, Sharma said, "To every Paytmer, Your favourite app is working, and will keep working beyond 29 February as usual. I, with every Paytm team member, salute you for your relentless support."

While Madhur Deora, President and Group CFO at Paytm has explained that Paytm And Paytm Payments Bank are not the same entity.

Deora in a statement that was shared with GoodReturns.In said, "There may be this impression that Paytm and Paytm Payment Bank are one, but by design and by structure, it is not and they cannot be. First, it is an associate company and second is not an associate company in the sense that is some Bank. And first and foremost a bank is that it has to follow the governance that a bank is supposed to follow, which is to say that has to have its independent management team, which reports to the board and the matters that have to go to committees of the board where can only be independent directors.

The president of Paytm further added that a bank has to have independent compliance and risk teams too.

Even though Paytm and its payments bank are two different entities, RBI's restriction for now is significantly impacting the fintech's share price.

This could well be the end of the road for Paytm's banking road but its other services will continue as usual.