New Delhi: Paytm founder and CEO Vijay Shekhar Sharma Thursday termed the impact of Reserve Bank of India (RBI) curbs on Paytm Payments Bank Ltd (PPBL) a “big speed bump” for the company, but said it is something that it will be able to see through in the “next few days or quarters”.
Speaking at an investors’ call, Sharma said that this is an opportunity for the company to come out stronger, better and more capable. “…you can be very sure that when we look at ourselves in future and look at this event…We will see it as the event that made us superior and better than anyone else.”
In a move that hit Paytm hard, the RBI Wednesday put curbs on PPBL, including prohibiting it from operating its mobile wallet as well as barring the bank from taking further deposits or undertaking credit transactions or top-ups in any customer accounts, prepaid instruments, wallets, FASTags, or National Common Mobility Cards, after 29 February.
Paytm Payments Bank is a key banking partner for Paytm. For example, the popular wallet services accessed via the Paytm app belong to PPBL, and the funds deposited in about 33 crore wallet accounts are held with the bank. According to Reuters, PPBL is 49 percent owned by Paytm, also known as One 97 Communications (OCL), and the remaining 51 percent is held by Sharma.
Reacting to the news, Paytm’s share price nosedived Thursday, closing lower by 20 percent or Rs 152.20/share on the BSE at Rs 608.80 per share.
Asked about the exact reasons for the curbs announced by RBI, Sharma said the RBI has not shared the exact details with them.
“So something that is based on over the period, what different audits they would have done…we don’t know the exact nuance what triggered (this)…(RBI) is in discussion with PPBL and the payment bank cannot share these facts with, let’s say, the parent or shareholders…This is an interaction between the payment bank and the Central Bank.”
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‘Paytm to work only with other banks’
According to Sharma, OCL has already been working with other banks for the past two years, and the company will now accelerate the plans and completely move to other bank partners. “Going forward, Paytm will be working only with other banks, and not with PPBL,” he said, adding that its nodal accounts and QR codes will be moved to other banks.
The company expects this action to have a worst-case impact of Rs 300 to 500 crore on its annual EBITDA (earnings before interest, taxes, depreciation, and amortization) going forward.
“The Rs 300-500 crore that we have mentioned is the worst case annual EBITDA impact that does not take into account the expectation that we will be able to continue all the businesses that were dependent on PPBL…but I do expect that over time, we will be able to offset this,” Madhur Deora, President and Group CFO at Paytm said at the investors’ call.
Replying to a query, Deora added that the Rs 300-500 crore impact number assumes that the wallet business will “shrink dramatically”.
“On behalf of Paytm, I can say that it is more of a big speed bump, but it is something that we believe…with the partnership of other banks and capabilities that we have already developed, we’ll be able to see it through in the next few days or quarters,” Sharma said.
Meanwhile, Deora said that while there may be an impression that PPBL and Paytm are one, by design and structure it is not possible.
“First and foremost for a bank is that it has to follow (bank-specific) governance (measures), which is to say it has to have its independent management team which reports to the board…It has to have independent compliance and risk teams and so on…Yes, there might be that impression…But by design and structure and by reality, it just does not function like that and cannot function like that.”
He, however, acknowledged that “…it is a tricky situation…because an associate of yours has to make independent decisions. But if those decisions…those actions then are found to be incomplete or wanting from the regulator…obviously it has reputational risk from all of us.”
“We…clarify that as per banking regulations, Paytm Payments Bank Limited is run independently by its management and board. While OCL is allowed to have two board seats on the board of Paytm Payments Bank Limited, as a part of its shareholder agreement, OCL exerts no influence on the operations of Paytm Payments Bank Limited, other than as a minority board member, and minority shareholder,” the company also said in a statement issued Thursday.
(Edited by Richa Mishra)
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