Paytm, the popular digital payments app is in the news again. According to a report by Moneycontrol, Paytm has resumed lending activities after temporarily halting new loan disbursements for almost two months.
One 97 Communications, the parent company of Paytm, also saw its share price surge today (April 2, 2024) on the back of the positive news. Although, the stock is still down 35% year-to-date (YTD) after facing strict restrictions from the Reserve Bank of India (RBI) earlier this year. The pause was led by Paytm’s partner banks and non-banking financial companies (NBFCs) seeking clarity on the RBI’s directive regarding Paytm’s banking partner entity, Paytm Payments Bank Limited (PPBL).
Current status
In March 2024, Paytm restarted lending money to merchants in partnership with two existing partners – SMFG India Credit (formerly Fullerton) and Shriram Finance. Over Rs 500 crore in loans have been disbursed so far, including top-up loans to existing merchants and some new loans. Paytm is also in talks to onboard Muthoot Finance as a new lending partner for both personal and merchant loans.Â
Why the Pause?
The temporary pause in lending happened because around 10-15% of Paytm merchants had set up auto-pay mandates through their PPBL accounts. Similarly, some personal loan borrowers had also linked their auto-debit instructions to PPBL. The RBI had issued a directive regarding PPBL’s role, leading to uncertainty for Paytm’s lending partners. Paytm has been working to move merchant settlement accounts to other banks and has reportedly completed over 85% of the transfers. There are speculations of HDFC Bank being on boarded as third partner for migrating merchants on the Paytm platform. Axis Bank and Yes Bank have already gone live on the platform in March for the same. Canara Bank and Kotak Mahindra Bank are expected to join as well.
What next?
While Paytm has reportedly resumed merchant lending through two allies, SMFG India Credit and Shriram Finance, many other partners are said to be in a “wait and watch” mode before starting new loans with Paytm. They want to ensure there are no regulatory issues and are verifying Paytm’s systems. One key partner, Aditya Birla Finance, has already reduced its exposure to Paytm for postpaid and other loan products.
Impact on Business
The temporary lending disruption is expected to impact Paytm’s financial performance in the upcoming quarter. Analysts estimate a 24% decline in Paytm’s revenue and a 30% drop in contribution profit for the fiscal year 2025. Paytm’s ability to recover lost business and resume growth over the next 12 months will be closely watched. The company is also considering entering the secured business loan segment to sustain growth in its financial services vertical.
Do you think Paytm will be able to bounce back? Will this provide a positive momentum to stocks of all the newly onboarded banking partners? Guess we will find out soon!
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Disclaimer: The above content is for informational purposes only. Please consult a SEBI-registered investment advisor before investing in market-linked instruments.
