The tale of Paytm so far: from RBI involvement to stock market meltdown and rumors about sales

The tale of Paytm so far: from RBI involvement to stock market meltdown and rumors about sales

The tale of Paytm so far: from RBI involvement to stock market meltdown and rumors about sales

Due to the Reserve Bank of India's strict regulations on the fintech company, Paytm Payments Bank is experiencing an existential crisis. Here, everything is cruel.

Due to strict limitations from the Reserve Bank of India (RBI), Paytm Founder-CEO Vijay Shekhar Sharma's brainchild and adored unicorn success story, Paytm Payments Bank (PPBL), is facing a significant dilemma. is adhering to.

Sharma is the 51 percent owner of PPBL, a One97 Communications Limited subsidiary. It began operations in 2017 and provides a range of digital banking services, including as FASTag, current accounts, and savings accounts. The RBI has instructed PPBL to cease all further credit transactions, deposits, and top-ups on client accounts after February 29. The bank's long-term sustainability is called into question by the action.

With Rs 283.5 crore received and Rs 41 crore transferred, PPBL dominated UPI transactions in December, according to the National Payments Corporation of India (NPCI). The PPBL app registered 144.25 lakh transactions totaling ₹16,569.49 crore in the same month.

So let's take a look at the most recent advancements that might endanger startups.

What resulted from the involvement of the RBI?

When it came to related party transactions, compliance problems, and anomalies in KYC (Know Your Customer) regulations, RBI acted strictly. Money laundering and dubious transactions involving crores of rupees are the reasons for the involvement. Red flags were triggered by instances of non-KYC compliant accounts and the usage of a single PAN for many accounts.

As to a report by Reuters, the RBI began to investigate PPBL after discovering that hundreds of thousands of accounts had been opened without the required documentation. Regarding anomalies in PPBL accounts, RBI notified the Enforcement Directorate (ED) and other government authorities.

In several cases, the total amount of transactions in PPBL accounts surpassed crores of rupees, surpassing the legal limit on minimum KYC pre-paid instruments, which also aroused red lights, according to the PTI report. The agency was informed by sources that this has raised worries about potential money laundering.

The Economic Times was also informed by sources that an instance occurred when a Permanent Account Number (PAN)-linked account managed over 1,000 wallets. Customers, depositors, and wallet owners are now at grave danger due to significant inconsistencies in KYC procedures.

The Reserve Bank of India ordered Paytm Payments Bank to cease taking deposits or top-ups across a variety of instruments from February 29 as part of a major regulatory action.

Sanjay Malhotra, the Revenue Secretary, responded to the circumstances by telling Reuters that the ED would look into PPBL if any proof of unlawful activity is discovered.

"If any fresh complaint of money laundering is made against Paytm by RBI, it will be under investigation by ED as per the law of the land," added Malhotra. Later on, he emphasized that, as the business informed Mint, Paytm has not yet been the target of any law enforcement action.

How did Paytm react?

In response to the events, the founder and CEO of Paytm gave consumers confidence over the app's operation beyond February 29. He thanked Paytm consumers for their support and commitment in a message on February 2, highlighting the company's commitment to serve the nation in compliance. Regarding Financial Inclusion and Payment Innovation.

The business claimed in a number of releases that Paytm's management is still in constant communication with the RBI in order to adhere to the directives.

According to PTI, Paytm responded to the ED inquiry by saying they follow the strictest ethical guidelines and have never been the focus of a money laundering probe.

On February 5, the firm denied accusations that it or its affiliate PPBL was conducting an investigation or breaking any FX rules. The company described the recent media reports as malicious, deceptive, and entirely false.

In an exchange filing, the firm said, "The company filed a specific clarification yesterday, emphatically rejecting any probe being conducted by the ED on OCL, our associates, and our management." Since then, other unfounded rumors have surfaced in the media about the firm or its subsidiary PPBL being looked into for potential foreign currency law infractions.

We would like to reaffirm that no such inquiry is being conducted against the business or its affiliate Paytm Payments Bank Limited. Such media claims, according to the corporation, are spiteful, utterly false, and detrimental to the interests of all of our stakeholders.

Financial issues: The business is having a series of difficulties. On February 6, the price of Paytm's shares significantly rebounded after dropping 9% in early trading due to intense stock market activity. On the BSE, Paytm shares were trading more than 5% higher.

Paytm shares dropped as much as 9.77 percent in early trading, hitting a record low of ₹395.50 on the BSE. It has, nevertheless, increased significantly—by more than 19%.Recoveries were observed: OM was trading in the green and at lower levels.

Over 68 lakh equity shares, or 0.1% equity, of One97 Communications, the parent company of the financial behemoth Paytm, changed hands on stock markets today at an average price of ₹394 per share, valued at ₹269.4 crore. In a week, Paytm's share price dropped by 39%.

The RBI's move caused a sharp decline in Paytm's shares. Between January 31 and February 2, 2024, the firm had a 36 percent decrease because of a sharp decline in the shares of One97 Communications Limited, the parent company of Paytm.

In only two days, the freefall caused the market value to drop by ₹17,378.41 crore. It is anticipated that Paytm generates between ₹300 and ₹500 crore in operational profits annually.

The share price of One 97 Communications (Paytm) continued to decline for the third session in a row, reaching its record low on the BSE on February 5 at ₹438.35, which is also 10% below its lower circuit. This occurred after a 36% decline in the stock over the previous two sessions.

The stock had dropped about eighty percent since its IPO price of ₹2,150 on February 5 and was 56% off its 52-week high. In the meanwhile, the stock dropped almost 42% in three sessions in February after a gain of around 20% in January. This stock had a decrease of almost 7% in the last year.

The most notable person who has built the bank is Warren Buffett's Berkshire Hathaway, which last year in an open market deal split off Paytm's parent firm, listed fintech startup One97 Communications. Two months prior to the RBI action, this agreement was completed via wholesale transactions.

For ₹1,371 crore, Berkshire Hathaway sold Ghisallo Master Fund along with Copthal Mauritius Investment its remaining 2.46 percent ownership in Paytm in November 2023. Previously, the business had sold a portion of its investment during its initial public offering (IPO) in 2021. Copthal had 7,575,529 shares, while Ghisallo acquired 4,275,000 shares. The purchase price per share was ₹877.2. JPMorgan, a global investment bank, assisted in transaction execution.

Berkshire Hathaway made ₹301.70 crore when One97 went public, selling the stock for ₹2,150 a share. According to Mint, the company's investment in Paytm has yielded earnings of Rs 1,672.7 crore overall, which translates to a loss of almost Rs 507 crore. In recent days, a number of Paytm's major investors, including SoftBank and Ant Group, withdrew their funds from the business.

Client Side: Problems, Solutions, and Schedules

Services including loan disbursement, insurance, and equity trading are thought to remain unaffected, even if consumers have the option to switch to other wallets. The offline merchant options offered by Paytm will not change.

Users received assurances from Paytm that its UPI service would run smoothly and that it will work with other banks to make backend modifications for continuous service. Users have been informed by the corporation that more measures would be implemented in response to the current limitations. It's not necessary to do it.

According to Paytm, users may keep using the sum in their savings accounts, wallets, Fastag, and NCMC (National Common Mobility Card) accounts, and the RBI order won't affect them. On the other hand, Paytm's senior management said on Thursday's results call that they are collaborating with other banks on the migration strategy for customers of Wallet, Fastag, PPBL, and other services.

Consumers will not be able to add money to their Paytm wallet after February 29; they can only utilize it till it expires. This prohibition also extends to Fastag, PPBL accounts, and other related services. There are no limitations on transactions or withdrawals.

Wallet services are offered by more than 20 banks and non-banking organizations; customers may investigate choices such as Mobikwik, PhonePe, SBI, ICICI Bank, HDFC, and Amazon Pay. 37 banks in total, including well-known ones like SBI, HDFC, ICICI, and Airtel Payments Bank, provide Fastag services.

Will Jio, owned by Ambani, buy Paytm? Not for sale, sources said.

The massive fintech startup Paytm made it clear on February 5 that it is not in negotiations to sell its wallet business. A Paytm insider has clarified that the company is not consulting with anybody on a sale, despite media rumors suggesting that the Paytm wallet business might be sold to Jio Financial Services, which is owned by Mukesh Ambani and Reliance.

An article in Hindu BusinessLine claims that the troubled fintech was having exploratory discussions with Jio Financial Services and HDFC Bank, among other businesses. Paytm has not yet released a formal comment on this issue. Mint was unable to independently confirm the assertions.

A PPBL spokeswoman declined to make an official remark in the meantime. "We don't address market speculation in our comments. INC 42 cited a business spokeswoman as stating, "We fully comply with the regulator's requirements and the team's endeavor is to make sure a seamless customer experience given the products offered by PPBL."

The chorus is joined by political noise

In spite of RBIPradhan's critical remarks, Congress spokesman Supriya Shrinet reportedly questioned ED's "inaction" on PPBL on February 5 (ANI report).

What position does the Center have on this matter? For the last several years, Paytm Payments Bank has been given a long rope. Why? The creator of Paytm Payments Bank is an ardent supporter of Prime Minister Narendra Modi, often posting photographs with him with endorsements for him in the media. During his electoral rallies, PM Modi endorsed Paytm. When accusations are made against PM Modi's cronies, why do authorities not respond? Why is ED not saying anything?" the Congressman asked ANI.

"Paytm Payments Bank has been prohibited by RBI, and it will close on February 29. The RBI has made some very severe claims. The anomalies began in 2017. Why is the CBI being mute in this matter while the RBI discusses money laundering? Asking Srinet.

Previously, on February 3, during the opening of Digital India Future Labs in New Delhi, Union Minister Rajiv Chandrashekhar said being considered a fintech or technology business does not free any organization from regulatory oversight.

The Union Minister of State for Entrepreneurship, Skill Development, Electronics, including Technology reportedly told ET Now that the regulator has complete jurisdiction to control any firm. On Saturday, he gave a speech at the opening of Digital India Future Labs in New Delhi.

"Every entity within an area may be regulated by a regional regulator with complete jurisdiction. That was done by RBI, and it was within their rights to do so. Anyone who works for a tech business or fintech is nonetheless subject to regulatory monitoring. According to Moneycontrol, Chandrashekhar said, "It is available."