Paytm, a leading Indian digital payment company, has been facing some issues in its lending business for the past couple of months. This has happened because of the RBI’s restrictions on Paytm Payment Bank (PPBL) Operations. However, it resumed its lending business with merchant loans in April 2024 after it was put on a temporary pause in January 2024.
Why did Paytm have to pause its lending activities?
In January 2024, the RBI restricted PPBL from onboarding new customers and conducting some financial transactions due to concerns about persistent non-compliance with regulations. This primarily affected PPBL’s ability to function as a regular bank. Paytm Payments Bank (PPBL)Â is a subsidiary of One 97 Communications, the company that owns Paytm. These extractions were imposed because of the concerns regarding the non-compliance with regulations.
While RBI’s action didn’t directly impact Paytm, it created a ripple effect. PPBL played a crucial role in processing loan applications, disbursing funds, and managing repayments for Paytm’s lending business. However, with restrictions on PPBL’s operations, It was not possible to continue with these processes. Not only this but the controversy with PPBL caused the existing lending partners of Paytm to be cautious or wait for regulatory clarity before resuming collaborations. Which further impacted Paytm’s lending ability. Also in December 2023, RBI tightened regulation regarding unsecured personal loans, which also impacted the lending activities of Paytm.
Resumption of lending activities from March 2024
As of 21 March 2024, Paytm has partially resumed its lending activities. Paytm started providing merchant loans in partnership with two of its existing allies – SMFG India Credit and Shriram Finance. These entities are separate from PPBL and are now handling loan processing and disbursement. Apart from Paytm now focusing on non-banking financial institutions, there has been another change. Paytm now seems to be prioritizing larger personal and merchant loans for creditworthy customers instead of the small-ticket unsecured loans they offered earlier.
The lending resumed around 21st March and around 500 Crore loans have been disbursed so far, which includes both top-ups from existing merchants and some new loans. Since a lot of Paytm merchants had set up autopay mandates through their PPBL accounts and for personal loans, some Paytm borrowers had set up their e-NACH or autopay through PPBL accounts. Paytm has to move their settlement accounts to other banks and has completed about 85% of the transfers.
With these modifications and changes, Paytm lending business Is on a path to recovery. Many other partners of Paytm are still cautious about their exposure to the firm and have adopted the “wait and watch” approach and are yet to decide on the partnership while continuing to verify books and product systems to ensure everything is in order.
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