Paytm shares crash 20% as India’s central bank orders freeze on affiliate bank

Paytm Soundbox / Photo credit: Paytm

Samreen Ahmad contributed to this report.

Paytm is seeing its share price fall by 20% after the Reserve Bank of India (RBI) ordered Paytm Payments Bank – the Indian fintech giant’s banking affiliate – to stop accepting deposits into customer accounts or wallets.

According to a statement released by the central bank, customers are allowed to withdraw and/or utilize their account balances. However, Paytm Payments Bank will not be allowed to offer other banking services – including fund transfers and Unified Payment Interface (UPI) facilities – from February 29.

The move comes less than two years after RBI barred Paytm Payments Bank from onboarding new customers. A subsequent audit found “persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action,” the central bank said.

An indirect hit

Akin to its name, Paytm Payments Bank is a payments bank, which is a new banking model created by the RBI. Payments banks may accept customer deposits in the form of current and savings accounts, but they may not issue loans, credit cards, and other credit products.

To be clear, RBI’s ruling does not extend to Paytm’s other businesses, which span from digital payments to point-of-sale systems and even ticketing. The direction does not impact “user deposits in their savings accounts, FASTags, and NCMC accounts,” Paytm said in a statement.

“Your Paytm app is working. Most of the services offered by Paytm are in partnership with various banks (not just our associate bank),” wrote Manmeet Dhody, Paytm’s CTO, on Linkedin. “We started our journey of working with other banks over the last two years, which we will now accelerate.”

Despite its name, One97 Communications – Paytm’s parent company – owns just 49% of the bank. Vijay Shekhar Sharma, Paytm’s founder, holds the majority 51%.

Still, Paytm as a whole is not immune from the shock. Aside from the fall in share price, Paytm expects a hit to its EBITDA of between US$35 million and US$60 million in the worst-case scenario.

As noted by research firm CLSA, Paytm would also have to find new partner banks to provide UPI services as well as its payment aggregator business.

RBI’s move has sent shockwaves throughout India’s startup scene. Ashneer Grover, co-founder of fintech unicorn BharatPe, wrote on his X account that “such moves will kill the [fintech] sector altogether.”

Siddarth Pai, founder of 3one4 Capital, tells Tech in Asia that the RBI is “extremely stringent and doesn’t shy away from taking strong measures.” In this case, “RBI’s rebukes have evolved from mere monetary penalties to striking at the heart of business and revenue models.”

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