Daybreak - Paytm has a message for its lending partners and RBI

Episode Date: April 15, 2024

In January, the RBI, more or less killed Paytm Payments Bank. But Paytm Bank was the backbone of its loan business, the same business that helped it recover from its post-IPO bloodbath.Now, Paytm’s lending partners, on whom its loan business is dependent, are spooked  They dont know if they should continue working with Paytm. Meanwhile, Paytm is doing its best to save what it can but Paytm Payment Bank is currently in limbo. Last week, Survinder Chawla, the MD and CEO of Paytm Payments bank also put in his papers. So far, we don't know what is going to happen but there’s one thing we know for sure: Paytm is doing everything it can to separate itself from Paytm bank, which was once an integral part of its business.Tune in.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.**Paytm’s founder Vijay Shekhar Sharma is an investor in The Ken

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too? It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Since the beginning of this year, I've been telling you about what is happening to Ptm. The fintech giant, as you know, is in quite the pickle. In January this year, the RBI or the Reserve Bank of India,

more or less killed P.T.M. Paytem payments bank was the backbone for Ptm, because without it, paytm could not have grown its loan business, which was what got it out of the post-IPO bloodbath. So, the RBI, in other words, basically told Ptm, we have warned you too many times and you've been flouting the most important rules of the loan business, which is KYC or know your customer. We know there are thousands of cases where a single pancard was used to open multiple accounts. Enough. Go stand in the corner and actually face the wall while you're doing it. Now, this has been going on for a few months.

Obviously, it's caused quite an upheaval inside and outside of Ptm. Paytm's lending partners on whom its loan business is dependent are spooked. They do not know if they should continue working with Ptm at all. And of course, it is a fair concern. Meanwhile, Ptm is doing its best to save what it can. In a previous episode, I told you about how Ptm is relying on its ground force, its sales agents, to protect its massive merchant base. By the way, with close to 40 million merchants, it accounts for nearly 75% of all merchants

on UPI in India. But Ptm Payments Bank is currently in limbo. In fact, as of last week, it is also headless. I mean, Survindar Chavla, the MDN CEO of Paytam Payments Bank, put in his papers. So far, we do not know what is going to happen to Paytm Payments Bank. But there's one thing that we know for sure. Ptm is doing everything it can to separate itself from Ptm Bank, which was once an integral part of its business.

Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nagda Sharma, and I don't chase the news cycle. Instead, thrice a week. On Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Monday, the 15th of April. To begin with, let us briefly look at what made Paytm bet so big on its loan business. We all know what happened to Paytm post its IPO.

One year in and its stock lost three-fourth of its market value. No other large IPO in the last decade had seen such a bad fall. in stock value within the first year of listing. But then, in July last year, very dramatically, Paytm's share value saw a 90% jump. What could have Paytm possibly done to bring about this crazy turnaround? It was personal loans. Personal loan became the fintech's go-to driver for growth and for revenue. Since September 22, Paytm doubled the amount of personal loans that it was giving out. In fact, it was personal loans that was the reason why PTAM saw more than a 60% jump in revenue in the year that ended in March 23.

Now, even though it worked out for Ptm before the RBI came down on it, we'd actually told you how it was a huge risk for Ptm. Because remember, Ptm does not have an NBFC license of its own. NBFC is non-banking finance company. which is why its lending partners like banks and other NBFCs were in the driver's seat of Ptm's lending segment. Now, the same lenders are skeptical. Obviously, they are rethinking being associated with Ptm because no one wants to come under the RBI scanner. So for Ptm, winning over its lending partners is of the utmost priority.

And what is it doing to win them back? It is showing them how OCL or 197 communication, Limited, Paytam's parent company is completely separate from Paytm Bank. Also, it is a signal to the RBI. Now, without a non-banking license, OCL mainly works by distributing and servicing loans from its tie-ups with banks and non-banks like ICICI, PIRAML Finance, Tata Capital and others. It does this in return for a fee. But after what happened with the RBI, OCL hit pause on its lending operations for a few weeks. And the Ken reporter Ronakumar Gunjan found out that only two of the eight NBFC partners

have resumed their business since then. And PTAM executives are worried because they told us OCL's future revenue will mostly come from lending. The payments business is large, but there are no margins in the segment. More on how PATM is trying to convince its lending partners in the next segment. Stay tuned. Hi, I'm Rahal Philippus. You're probably wondering who I am.

I'm new here at the Ken, but I've been a listener of the Ken's Business News podcast daybreak for a while now. For a little over a year, this podcast has consistently delivered exactly what it promised. It didn't just give you business news. It gave you insight. I've been a journalist for about four years now. I've worked at multiple news desks,

even hosted a general news podcast. But I'll be honest with you. Business news was always a little daunting. Daybreak changed that for me. Three times a week, daybreak host Snickda was almost like a companion during my commute to work. Which is why I'm stoked to be joining her as a co-host. You'll be hearing a lot more of me. Starting next week, daybreak episodes will drop four times a week.

Monday, Tuesday, Benin's Day and Friday. Actually, my first daybreak episode is dropping tomorrow. I'll talk to you about how AI starting. startups in India have been collaborating with political parties for the upcoming Lokeshab polls. We also have some other big changes lined up over the next couple of weeks that we're really excited about. Don't worry, I'll keep you posted. And now, back to the episode. First, let's look at how OCL actually carries out its digital lending business. Basically, it operates through two types of partnerships. The first one is a simple sourcing partnership.

OCL just acquires the leads through digital marketing and leaves the loan servicing to the lenders. The second type is a lending service provider relationship and this requires a deeper integration. In this, OCL takes care of acquisition, policy creation, servicing and loan collection on behalf of the lender, which means that both OCL and the lender have to work together across the borrower's entire life cycle. Now, OCL prefers the second kind of partnership because they make more money from it. But the fintech is finding it difficult to build a rappel with the second kind of partners. For example, Aditya Birla Finance shares a service provider relationship with OCL. It has the largest loan book of nearly 8,000 crore rupees.

But guess what? It had withdrawn as PTAM's lending partner one whole month before the RBI officially shut down the payment bank. This obviously made other lending partners alone. And Aditya Birla executive told again that it is difficult to see the company resuming its partnership with Ptm any time this year. So OCL is trying to convince its lending partners. It's not only restructuring all its business practices, but also cutting all connection with the payment bank, beginning with Vijayshikar Sharma, the co-founder and chief executive officer of Paytm itself. But hang on, why Vijayshakar Sharma? What did he do?

Two former OCL executives who were part of the PATAM's team during RBI meetings told us that apart from the K-YC issues, Sharma's influence in the bank's operations was seen as a sort of a red flag by the RBI. Sharma, who was then a part-time non-executive chairman of PATM Payments Bank's board, held a 51% state. But he wasn't supposed to be involved in the day-to-day operations. This was the job of Surindar Chavla as the CEO and the MD of the Payments Bank. But one of the ex-employees told us that it was Sharma who took the majority of the

operations-related calls. They claimed that there were times when he even went to the RBI summons alone which were meant for executive heads of the Payments Bank. This was not in line with the Banking Regulations Act. So even though the RBI has not mandated that Sharma should cut ties with the payments bank, he voluntarily stepped down as its chairman and board member at the end of February. But a CEO of a private bank and a former chairman of SBI told the Kien that it is too early for Sharma to change RBI's mind. They said that just stepping down from the board and appointing public sector experts while holding a 51% stake in the payment bank will not impresses.

the RBI. The only thing that can currently save it is if OCL shows the RBI and its lending partners that it can continue doing clean business without Ptm Bank. Daybreak is produced from the newsroom of the Ken India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps and podcast. podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host and today's episode was edited by my colleague Rajiv Sien.