Paytm is in serious trouble after the Reserve Bank of India (RBI) cracked down on them. A recent RBI circular stated that Paytm Payments Bank could not take new deposits or conduct credit transactions from February 29.
What does this signify for the users? Starting on that day, you will be unable to add funds to your wallet, prepaid instruments, FASTags, or National Common Mobility Cards.
In essence, all account holders must clear their balances and cancel their accounts. Following the announcement, Paytm’s share price plunged nearly 20% on Thursday.
This change would affect a large number of people, including 300 million wallets, 30 million bank accounts, 1.6 billion UPI transactions every month, and eight million Fastags linked to Paytm Bank.
So, why is this happening?
According to the RBI instructions, an external audit of Paytm’s records revealed regulatory violations as well as significant supervisory concerns. The crisis began in March 2022, when the RBI prohibited Paytm Bank from onboarding new clients and required comprehensive examinations of its IT infrastructure.
In short, the RBI, unsatisfied with Paytm Bank’s actions since March 2022, cracks down due to regulatory and compliance issues.
What Is the Impact on Paytm?
According to Jefferies, Paytm’s business effect would be mostly driven by reputation problems emerging from governance or compliance, with the way to resolution being stronger regulatory compliance.
The RBI’s decision to close the Paytm Payments Bank adds to the already hefty regulatory burden on Paytm’s business, according to Macquarie analysts.
What will Paytm do?
Paytm stated that company will take action promptly to comply with the RBI’s instructions. It will discontinue operations with Paytm Payments Bank and begin working alone with other banks.
It anticipates a worst-case effect of 3 to 5 billion rupees ($36 million) on its annual earnings before interest, tax, depreciation, and amortization (EBITDA).
Can the Bank Meet the Outflows?
According to a person familiar with the subject, Paytm Payments Bank‘s deposits are stored in government bonds and deposits at other banks, so liquidity should be easily available. According to the source, the bank may not need a special liquidity line from the central bank.