Even as Paytm’s wallet business faces an existential crisis following RBI’s directive on its payments bank, its lending business is also likely to come under pressure. This is because its partner banks and NBFCs are growing increasingly hesitant to disburse loans through the Paytm app on concerns surrounding unsecured lending in a risky environment, analysts said.
In November 2023, the RBI increased the risk weight on the consumer credit exposure of commercial banks and non-banking finance companies (NBFCs) by 25 percentage points. This means more capital has to be put aside for personal loans, thus bringing down the quantum of unsecured lending.
The big impact of this will be on fintechs such as Paytm, which partner with banks and NBFCs to distribute buy-now-pay-later, merchant and personal loans, analysts had warned.
Paytm will continue to see sharp daily volatility; investors divided on ‘value’ in stock
“Paytm has a good customer base and extensive merchant reach, which banks and NBFCs were using to meet their loan targets. These people were availing of personal loans by answering just 2-3 questions. But now banks and NBFCs will be wary of distributing loans to these people as RBI has warned of rising risk in the unsecured space,” said Akshay Tiwari, fundamental research analyst at Religare Broking.
In an interview with Moneycontrol in January, Suresh Ganapathy of Macquarie said, “We do believe that there will be more earnings cuts and more revenue-related cuts for Paytm because of the RBI rules and regulations on unsecured loans.”
Currently, credit growth is around 15-16 percent. This will come down to 13-13.5 percent over the next year as unsecured lending tempers, he added.
Slowdown in loan growth
Soon after the RBI increased risk weights, One97 Communications announced plans to slow down its small-ticket postpaid loans while looking to expand big-ticket personal loans and merchant loans.
“When Paytm expands to higher ticket loans, it goes head to head with larger NBFCs like Bajaj Finance, Sundaram Finance and the like. Small-ticket postpaid loans below Rs 50,000 were Paytm's stronghold, and it loses that charm,” said Tiwari.
On the other hand, Morgan Stanley believes that the decision to scale down its small-ticket postpaid lending business will result in a drop in Paytm’s disbursement run rate over the near term.
Paytm shares nosedive on plans to slow down postpaid loans
The slowdown in loans is yet to play out, however. For the quarter ended December 2023, Paytm's overall financial services revenue stood at Rs 607 crore, up by 6.3 percent compared to Rs 571 crore in the previous quarter. On a YoY basis, this was 36 percent higher (from Rs 446 crore). Loan distribution is a major part of financial services, and makes up 20 percent of Paytm's revenue.
“As a continuation to our disclosure to the stock exchanges on December 6, 2023, we will continue to calibrate Postpaid further in Q4 FY 2024 and beyond on the back of continued macro uncertainty and regulatory guidance for less than Rs 50k loans,” Paytm’s management had said on January 19.
Total loans disbursed by Paytm were down to Rs 15,535 crore in the December quarter as against Rs 16,211 crore in Q2, even as they surged 56 percent on a YoY basis.
Reputational risk
Foreign broking firms such as Jefferies and mutual fund managers fear that Paytm's existing lending partners could hold back from making any disbursements via the app because of the curbs imposed on Paytm Payments Bank.
Additional fund requirement might have fuelled the fall in Paytm stock
“Till the time the regulatory concerns are addressed, they (Paytm) need to come up with quick-fix operating models that can cater to the needs of merchants and consumers, within the permissible regulatory construct. This can reduce the loss of customers/ merchants to competition,” said Sreedhar Prasad, former partner and consumer business analyst at KPMG.
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