The initial plan of Paytm Payments Bank to approach the Reserve Bank of India (RBI) for a small finance bank (SFB) licence by June end has been delayed as the RBI-directed IT audit will take longer to complete, two sources aware of the developments told Moneycontrol on June 29.
The IT audit is being done by one of the big four consultants.
“The auditor will submit an IT audit report to the RBI in next two to three weeks,” a source said requesting anonymity.
Payments bank can apply for conversion to a small finance bank after successfully operating for five years. Paytm Payments Bank commenced its operations on May 23, 2017 and completed five years of operations last month. On March 9, Moneycontrol reported that the lender will likely apply to the RBI for a SFB licence by June quoting a senior Paytm official.
IT audit
The audit process is going in line with expectation and nearing completion, said a source cited earlier.
The RBI had barred Paytm Payments Bank from onboarding new customers on March 11 and directed it to appoint an IT audit firm to conduct a comprehensive System Audit of its IT system. "Onboarding of new customers by Paytm Payments Bank Ltd will be subject to specific permission to be granted by RBI after reviewing report of the IT auditors. This action is based on certain material supervisory concerns observed in the bank," it had said.
A Bloomberg report on March 14 said the central bank’s action was taken in view of the payments bank violating data sharing norms, among others. The report was immediately denied by the firm.
“Paytm Payments Bank data resides within India, claims of Chinese data leak are completely false and sensationalist,” it said in a release.
“…existing customers can continue to enjoy the benefits of seamless banking and digital payments services without interruption. The savings of existing users in their PPBL account, their fixed deposits with partnered banks and the balance maintained in their Paytm Wallet, FASTag or Wallet Card and UPI services are completely safe and functional,” it added.
The RBI’s main concern, however, was related to irregularities observed in KYC norms, the source said.
“The RBI’s main cause of concern was that Paytm had not complied with KYC norms while boarding customers to Paytm Payments Bank as these users had already completed their KYC details before boarding Paytm platform,” they said.
Email queries sent by Moneycontrol to RBI and Paytm did not receive a response.
As per Anand Dama, head of BFSI rating at Emkay Global Services, conversion of Paytm Payments Bank into a SFB will certainly be delayed due to the regulatory action. “The payments bank will have to first clear the embargo and also strengthen its systems and processes to comply with RBI norms to seek SFB licence. “So certainly, SFB migration will take time,” he said.
“RBI is keen on comprehensive KYC throughout its ecosystem. Many enablers have been put in place for ease of customer KYC for various participants. However, the regulator would want a fully covered exercise in each case,” said another senior analyst with a domestic rating agency.
Further, in an analyst call on May 21, Chief Executive Officer (CEO) of Paytm Lending business Bhavesh Gupta told analysts that the RBI mandated IT audit was working in a time bound manner.
“We do believe that the broader time limit the bank has been given, which is between three to five months, hopefully the process (RBI IT audit) should get over,” he said.
Impact of RBI restrictions
Analysts tracking the company said Paytm Payments Bank’s conversion into a SFB shall enable the company to build a sustainable business model.
Presently, payments banks are not allowed to extend loans on their own books and can accept deposits of up to 200,000 rupees. Such companies sign pacts with banks and non-banking finance companies to offer loan and deposit products.
The RBI had issued 11 payments bank licenses in 2016-2017 and of the total, presently only Paytm Payments Bank, Fino Payments Bank, Airtel Payments Bank and India Post Payments Bank are actively operational.
Paytm Payments Bank’s lending business, despite ban on onboarding of new customers, is expected to be stable, Gupta said.
“Purely new wallets and purely new CASA (current account and savings account) accounts is something which is currently not allowed. To that extent the impact has been extremely marginal and you could see that in our April announcements,” he said.
One97 Communications on May 20 had reported a loss of Rs 762.5 crore for the March quarter of the financial year 2021-22. The company had posted a loss of Rs 444.4 crore in the corresponding quarter of the previous fiscal.
Securing sustainable growth in lending business remains key for profitability of the payments bank, analysts said.
On June 15, Paytm reported that its lending business witnessed an annualised run-rate of Rs 23,000 crore for loan disbursements while device deployment crossed the 34 lakh mark in May.
The fintech giant clocked 5.5 million loan disbursals in April-May, higher almost six times than the corresponding period in previous fiscal. It disbursed loans amounting to Rs 3,576 crore during April-May, five folds higher than last year.
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