Paytm Seeks In-Principle Nod On Small Bank Licence

Paytm Payments Bank has written to the Reserve Bank of India (RBI), seeking an in-principle approval for becoming a small finance bank (SFB) that will enable it to extend loans. The bank has said that the approval will help the lender prepare the groundwork so that it would not have to spend time when it completes the five-year waiting period in a couple of years.

Paytm Payments Bank CEO Satish Kumar Gupta said that his organisation is the only profitable payments bank and has been in operations since May 2017. “One of the conditions for granting licence as a payments bank was that we have five years experience in the payments space. I have written to the RBI, asking for an in-principle approval so that we will be prepared to apply for the final licence when we are eligible,” Gupta said.

Last year, the RBI had said that payments banks could seek a conversion to SFBs. This conversion option was also made available to cooperative banks. Unlike payments banks, SFBs can grant loans.

Gupta said that the Paytm Payments Bank licence was cleared after granting a fit and proper due diligence. “Neither Ant Financial nor SoftBank have any interest or representation in Paytm Payments Bank,” he said.

Vijay Shekhar Sharma currently holds 51% in the entity with One97 Communications (OCL) holding 39%, and the remaining 10% held by a joint venture between Sharma and OCL. In a filing for its initial public offering, Ant Financial had described OCL as a major associate in which it holds 30.33% equity interest. Ant Group’s stake in Paytm’s parent has been valued at $5 billion, based on the $16-billion valuation ascribed to the business.

According to Gupta, the e-wallet and UPI business are fully in Paytm Payments Bank and the Paytm Payments Gateway, which facilitates customers to do e-commerce transactions at merchant portals, is the only payments related business outside the bank. Gupta said that the bank has seen a big jump in business in August as more and more customers preferred the contactless QR method for doing transactions during the Covid-19 pandemic.

“The RBI had allowed us to convert the minimum KYC account to a merchant account with the consent of the user. This was a big relief as these accounts had to be suspended if full KYC was not done after a year,” said Gupta. The bank’s transaction volumes had taken a 30% hit immediately after the lockdown, recovered to pre-Covid levels last month and is expected to be 30% above pre-Covid levels in August. According to Gupta, the bank processes over Rs 55,000 crore of transactions a month.

“Our business model is completely different from other payment banks. We are not interested in deposit and our revenue is mostly from transactions,” said Gupta. He said that the bank has not been hit hard by the ban on merchant discount rate (MDR) on RuPay as most of the transactions were on the bank’s own network and it therefore did not incur fees.

“We have made a representation to the National Payments Corporation of India to waive their switching fee where there is no MDR as these transactions would become a loss-making proposition for us,” said Gupta. 

Sandip Ginodia , CEO

 

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