The Paytm saga so far… from RBI action to stock crash & sale speculation

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PPBL, an affiliate of One97 Communications Limited, is 51 percent owned by Sharma. Commencing operations in 2017, it offers various digital banking services, including savings accounts, current accounts, and FASTag. The RBI recently instructed PPBL to cease further deposits, credit transactions, and top-ups on customer accounts after February 29. This move raises concerns about the bank’s future viability.

According to the National Payments Corporation of India (NPCI), PPBL led UPI transactions in December, with 283.5 crore received and 41 crore remitted. In the same month, the PPBL app recorded 144.25 crore transactions amounting to 16,569.49 crore.

So, here’s a lowdown on the latest developments in the start-up’s existential threat.

What led to RBI’s Intervention?

The RBI cracked the whip over irregularities in KYC (know your customer) norms, compliance issues and related party transactions. The intervention stems from concerns about money laundering and questionable transactions involving crores of rupees. Non-KYC-compliant accounts and instances of single PANs used for multiple accounts raised red flags.

As per a Reuters report, PPBL came under RBI scrutiny as hundreds of thousands of accounts were found to be created without proper identification. The RBI 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, surpassing regulatory limits in minimum KYC pre-paid instruments, PTI reported. Sources told the agency this raised concerns about potential 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 have exposed customers, depositors, and wallet holders to serious risks.

As part of a significant regulatory action, the Reserve Bank of India directed Paytm Payments Bank to stop accepting deposits or top-ups in various instruments after February 29.

On its part, in response to the situation, Revenue Secretary Sanjay Malhotra told Reuters that the ED will investigate PPBL if evidence of illegal activities is found.

“If there are any fresh charges of money laundering against Paytm by RBI, those will be investigated by the ED as per the law of the land,” said Malhotra. He later also clarified that no law enforcement agencies have taken any action against Paytm yet, the company told Mint.

How has 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 2nd, he appreciated the support and commitment of Paytm users, emphasising the company’s dedication to serving the nation in full compliance with a focus on payment innovation and financial inclusion.

In multiple statements, the company said Paytm’s management continues ongoing discussions with the RBI to comply with directives.

On the ED investigation, Paytm said that they operate with the highest ethical standards and have not been the subject of an investigation regarding money laundering, PTI reported.

The company on February 5 rejected reports of investigation or violation of foreign exchange rules by the company or its associate PPBL and termed the recent media reports as entirely misleading, baseless and malicious.

The company in an exchange filing said, “The company filed a specific clarification yesterday, categorically denying any investigation by the ED on OCL, our associates and our management. We have since seen additional media reports making baseless speculations about investigations of the Company or its associate PPBL for violation of foreign exchange rules”.

“We would like to reiterate that the Company and its associate Paytm Payments Bank Limited are not the subject matter of any such investigation. Such media reports are entirely misleading, baseless and malicious, which harm the interests of all our stakeholders,” the company said.

Financial Troubles: Company Takes Hit-After-Hit

Paytm share price recovered sharply on February 6 after a 9 percent fall in early trade amid heavy volumes traded on the stock exchanges. Paytm shares were trading over 5 percent higher on the BSE.

In the opening trade, Paytm shares plunged as much as 9.77 percent to a record low of 395.50 apiece on the BSE. However, it saw a steep recovery of over 19 percent from the low and was trading in the green.

As per reports, more than 68 lakh equity shares of One 97 Communications, the parent company of fintech giant Paytm, or 0.1 percent of equity, worth 269.4 crore change hands at an average price of 394 per share on the stock exchanges today. Paytm stock price has fallen 39 percent in one week.

The RBI crackdown caused Paytm shares to plummet. A sharp decline in Paytm parent One97 Communications Ltd shares saw the company shed 36 percent from January 31 to February 2, 2024.

The freefall eroded market capitalisation by 17,378.41 crore in two days. Paytm d it anticipates an annual operational profit impact of 300-500 crore.

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 already crashed 36 percent in the previous 2 sessions.

The stock was 56 percent away from its 52-week high and almost 80 percent below its IPO price of 2,150 on February 5. Meanwhile, the stock shed over 42 percent just in the 3 sessions of February after an almost 20 percent rise in January. In the last year, the stock has declined by over 7 percent.

Most notably, Warren Buffett’s Berkshire Hathaway, which exited the listed fintech company One 97 Communications, the parent company of Paytm in an open market transaction last year seems to have made bank. The transaction which happened via a bulk deal, was two months before the RBI’s action.

In November 2023, Berkshire Hathaway sold its residual 2.46 percent stake in Paytm (it had sold some stake during the company’s IPO in 2021) for 1,371 crore to Ghisallo Master Fund and Copthall Mauritius Investment. Ghisallo purchased 4,275,000 shares, and Copthall had 7,575,529 shares. The deal was struck at 877.2 per share. Global investment bank JP Morgan helped execute the deal.

During One97’s IPO, Berkshire Hathaway had pocketed 301.70 crore, selling at 2,150 per share. Put together, the company has made a total of 1,672.7 crore from its investment in Paytm, essentially booking a loss of about 507 crore, Mint reported. Some of the marquee backers of Paytm, such as SoftBank and Ant Group, among others, had cashed out of the company in recent times.

Customer side: Issues, alternatives and deadlines

While users can shift to other wallets, services such as loan distribution, insurance, and equity broking are deemed unaffected. Paytm’s offline merchant offerings will continue as usual.

Paytm assured users that its UPI service will operate without disruption, collaborating with other banks to implement backend changes for uninterrupted service, following the recent restrictions the company assured that users need not take additional actions.

Paytm said that the RBI order also does not impact user deposits in their savings accounts, wallets, FASTags and NCMC (National Common Mobility Card) accounts, and they can continue to use the existing balances. However, Paytm’s top management during an earning call on Thursday said they are working on a migration plan for PPBL, wallet, FASTag etc users with other banks.

Customers can use their Paytm Wallet balances until exhausted 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 permitted without restrictions.

With over 20 banks and non-banking 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 choices like SBI, HDFC, ICICI, and Airtel Payments Bank.

Ambani’s Jio to takeover Paytm? Not for sale, say sources

Fintech giant Paytm, on February 5, clarified that it is not in talks with any company to sell its wallet business. Amid media speculations about the sale of the Paytm wallet business to Mukesh Ambani’s Reliance-owned Jio Financial Services, a Paytm source has confirmed that the company is not in consultation with anyone for the sale.

According to a Hindu BusinessLine report, the troubled fintech was in exploratory talks with a few companies, including HDFC Bank and Jio Financial Services. So far, there has been no official statement by Paytm on the matter. Mint couldn’t independently verify the claims.

Meanwhile, a PPBL spokesperson refused to give an official statement. “We do not comment on any market speculation. We completely abide by the direction of the regulator, 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 ED’s “inaction” PPBL despite negative observations by RBI, ANI reported.

“What is the Centre’s stand on the issue? Why did the Paytm Payments Bank get a long rope for the past seven years? The founder of Paytm Payments Bank is a bhakt of PM (Narendra) Modi, gets selfies with him and publishes ads in the PM’s favour. PM Modi backs Paytm in his election rallies. Why do the agencies stay mum when allegations are levelled against PM Modi’s associates? Why is the ED silent?” the Congress leader told ANI.

“The RBI has restricted Paytm Payments Bank and there will be no existence of it after February 29…There are very serious charges levelled by the RBI. The irregularities started in 2017…Why is the CBI silent when the RBI talks about money laundering in this 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 a 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 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 sectoral regulator has an absolute authority to regulate every entity within the sector. The RBI has done so and this is within their purview to do so. Being a FinTech or being a tech company doesn’t absolve anybody from regulatory oversight,” Chandrasekhar was quoted by Moneycontrol as saying.

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Pooja Gupta

CA Pooja Gupta (CA, ISA, having 15 years of experience. Educator and Digital Creator

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CA Pooja Gupta (CA, ISA, having 15 years of experience. Educator and Digital Creator

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