Paytm shares: Macquarie says RBI ban implications quite serious, near term solution unlikely

 Paytm RBI ban: Macquarie said the RBI had taken 15 months time to revoke its ban on digital business activities of the largest private sector bank. But in Paytm's case, the RBI has conducted a comprehensive IT audit.

SUMMARY

• Paytm's payment bank houses all 33 crore-plus wallet accounts.
• Existing customers are prohibited from carrying out basic banking operations.
• The RBI restrictions hamper Paytm's ability to retain customers in its ecosystem.

Macquarie in its latest note said the RBI's move to  stop Paytm Payments Bank Ltd from undergoing new credit and deposit operations, top-ups, fund transfers, and other such banking operations by 29 February 2024 will have serious implications, as it significantly hampers Paytm's ability to retain customers in its ecosystem, and accordingly restricts it from selling payment products and loan products.

"We think revenue and profitability implications in the medium to long term could be significant and remain a key item to monitor," it said.

Macquarie said the RBI had taken 15 months time to revoke its ban on digital business activities of the largest private sector bank. But in Paytm's case, since the first ban (in March 2022) for onboarding new customers (22 months have lapsed), the RBI has conducted a comprehensive IT audit and continued to identify non-compliance, which in its view indicates that the lapses are quite material.

"Accordingly, we do not see any near term solution to these problems and this effectively means, in our view, that RBI is indirectly revoking the PPI (pre-paid instrument) licence of Paytm," it said.

Macquarie said the bigger issue is Paytm has not been on the good books of the regulator and going forward, their lending partners also could possibly re-look at the relationships.

"At the time of writing of this note, we have not had any interactions with the management nor have seen any press release by the company. The views here are solely based on our interpretation of RBI's actions," Macquarie said.

Paytm's payment bank houses all 33 crore-plus wallet accounts. Given the fact that current MTU (monthly transacting users) for Paytm is 10 crore and the earlier ban was for onboarding new customers, Paytm could continue leveraging PBPLs customer base for selling payments and financial products.

Existing customers are prohibited from carrying out basic banking operations like credit, deposits, fund transfers, UPI transactions, FASTag toll payments, where Paytm has 17 epr cent market share and 6 crore users, bill payments, and use wallets.

"Given the severe restrictions imposed on PBPL, we believe it significantly hampers Paytm's ability to retain customers in its ecosystem, and accordingly restricts it from selling payment products and loan products," it said.