Exclusive: Paytm resumes lending with two partners, in talks with Muthoot Finance for fresh tie-up

After a temporary pause of almost two months, Paytm has resumed lending activities, starting with merchant loans in partnership with existing allies—SMFG India Credit (formerly Fullerton) and Shriram Finance, according to two sources close to the development who spoke to Moneycontrol.

Meanwhile, negotiations are underway to onboard a new lending partner, Muthoot Finance, for both personal and merchant loans.

"It resumed around March 21. Over 500 crore loans have been disbursed so far, which includes both top-ups from existing merchants and some new loans," they said, requesting anonymity.

This development comes almost two months after the fintech company led by Vijay Shekhar Sharma temporarily halted new loan disbursements, as its partner banks and NBFCs sought more clarity on RBI’s directive regarding its banking partner entity—Paytm Payments Bank Limited (PPBL).

While Paytm and PPBL operate as separate entities, around 10-15 percent of Paytm merchants (approximately 60,000-70,000 merchants) had set up autopay mandates through their PPBL accounts.

Similarly, for personal loans, some Paytm borrowers had set up their e-NACH or autopay through PPBL accounts.

Since then, Paytm has been working on moving their settlement accounts to other banks and has reportedly completed over 85% of the transfers, according to one of the sources.

"SMFG was Paytm’s biggest lending partner in terms of AUM (Assets Under Management). Almost 50 percent of disbursements came from it previously. So, getting it back on the block is a big relief for Paytm. But others (lending partners) are yet to catch up," a senior executive in banking partnership said.

Partners adopt "wait and watch" approach

As Paytm resumes loan operations, many other partners remain cautious about their exposure to the firm, adopting a "wait and watch" approach.

According to the company’s website, Paytm currently has tie-ups with Piramal Finance, Clix Capital, Aditya Birla Finance, Hero FinCorp, Poonawala Fincorp, among others, for digital lending services.

"A lot of lenders are cautious. They want to look at the fund flow and trace of PPBL in the same. They are yet to make a decision on the partnership while continuing to verify books and product systems to ensure everything is in order," the sources said.

"It’s still a wait-and-watch game for lenders before they start with new loans," they added.

One of its key partners for loans, Aditya Birla Finance, has already reduced its exposure to its loan sourcing partner Paytm for postpaid or small-ticket loans and is further cutting back on other products, including merchant and personal loans, people in the known tell.

In December, Paytm announced its decision to opt-out of its most popular credit product—Paytm Postpaid, a buy-now-pay-later (BNPL) offering for retail users, after RBI move to rein in the growth of unsecured personal loans.

It came as a major setback for Paytm, which has seen its high-margin financial services revenue grow at 64 percent, even helping the company reduce its losses substantially.

The impact of this was also reflected in December quarter results, wherein the total value of postpaid loans distributed fell 17 percent sequentially to Rs 7,496 crore in the said quarter.

The slowdown in the segment impacted Paytm’s overall loan book as well, with the value of loans disbursed on the platform falling sequentially to Rs 15,535 crore.

"The consumer loan portfolio sourced via Paytm is less than 1% of the total loan portfolio as of today (February 1). As a part of our calibrated approach towards the consumer loan portfolio, we have reduced this portfolio from about 2.5% as of June 30, 2023, to less than 1% today," the company said during earnings call announcing quarter results.

Aditya Birla’s majority BNPL book was sourced via Paytm, which has continued to decline over the past few months from Rs 2,200 crores by the end of Q2 to Rs 700 crores. "As of today, it has further decreased," the company noted.

In response to Moneycontrol’s latest queries, Paytm refuted the claims, stating it continues to hold partnerships with its existing lenders, without explicitly naming them, besides new tie-ups.

"Our lending business continues to expand with a diverse range of existing and new partners, each contributing to our growth based on their own scale and plans," the Paytm spokesperson said.

Queries sent to multiple partners remain unanswered.

Q4 expectations

The development comes at a crucial time as Paytm begins to piece together its business operations, starting with obtaining the TPAP license to restart UPI services and RBI’s approval to migrate merchants to new partnered banks, including HDFC, Axis and Yes Bank.

The adjusted postpaid rollout moderating the growth of personal loans, followed by the temporary disruption of overall lending, a major revenue generator for Paytm, is expected to be reflected in the upcoming Q4 numbers, impacting the company’s overall EBITDA.

Analysts remain watchful of Paytm’s ongoing business transition and its ability to recover lost business and resume its growth trajectory over the next 12 months.

"We estimate FY25E revenue to decline by 24 percent, while contribution profit declines 30 percent," brokerage firm Motilal Oswal notes.

The company’s contribution margin is expected to sustain at 51 percent over FY25E compared to 56 percent in FY24. "We will revisit our rating post Q4 results and in the interim maintain our Neutral stance on the stock," it said.

While Paytm is anticipated to retain the majority of its merchant base after receiving approvals from the NPCI, it is expected that around 15-20 percent of merchants may churn, it added.

On the customer front, the company has 60-70k customers with e-NACH mandates with PPBL, potentially resulting in a moderate impact on the consumer front.

"Paytm is also considering entering the secured business loan segment to sustain growth in its financial business over the medium term. We thus cut our disbursements by 10 percent/40 percent for FY24E/FY25E," it added.