Paytm Payments Bank Compliance with RBI’s Directives: EBITDA Impact

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Paytm Payments Bank's Compliance with RBI's Directives: EBITDA Impact

Reserve Bank of India (RBI) has Directed New Policies to Paytm Payments Bank

The Reserve Bank of India (RBI) has directed new policies to Paytm Payments Bank Ltd. India’s largest mobile payments and commerce platform has decided to comply with the directions of RBI and is ready to make new changes. In this regard, on Thursday, 1st Feb 2024, Paytm released a statement and announced that the company would immediately take steps to follow the directions of RBI on Paytm Payments Bank. However, this decision will affect the company and is expected to have a worst-case impact of approximately ₹300 to 500 crores on the annual Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). 

What Was The Guidelines Ordered Issued By RBI

However, India’s largest digital payment platform has shown optimism in the improvement of the company’s profitability. Noteworthy, on Wednesday, 31st Jan, RBI issued an order to Paytm Payments Bank to halt the acceptance of fresh and new deposits in the accounts of its PPBL and its popular wallets from 29th February 2024. The report states that RBI’s restrictions on Paytm are imposed after a system audit report and subsequent compliance validation report of external auditors. 

As per the directed order of RBI, PPBL is prohibited from any kind of credit and debit transactions or top-ups in any account of its customer including wallets or FASTags and it should come into effect after the end of February 2024 under section 35A of the Banking Regulation Act, 1949. Two years back, in March 2022, the Reserve Bank of India directed Paytm Payments Bank to stop the enlistment of new customers or users with immediate effect. In another statement released by Paytm has said that the founder of the company has already reconfirmed that he has not taken any margin loans. 

He also cleared that he has not mortgaged any shares directly or indirectly. The company stated in a BSE filing “We would take this opportunity to make it clear that as per banking regulations, PPBL is run independently by the board and management. While Other Current Liabilities (OCL) is permitted to have 2 board seats on the board of PPBL, as a part of its shareholder agreement, OCL experts have no influence on the operations or working patterns of PPBL, other than as a minority shareholder and, minority board member.” The company further added in their statement that, to comply with the directional orders of the RBI, Paytm Payments Services Limited will shift their nodal account of OCL to other banks after 29th February 2024. 

Meanwhile, OCL will carry forward the partnerships with numerous other banks in order to give numerous payment products to its customers. It further added that the other services of OCL related to finance, including insurance or loan distribution, and equity broking will not be affected. The parent company of Paytm, One97 Communications also states that despite the upcoming worst-case impact, the company will continue to improve the profitability of the company. It is worth noting that, in Q4, Paytm had reported an Earnings Before Interest, Taxes, Depreciation, and Amortization of ₹219 crore. As per the statement of One97 Communications. “Paytm Payments Bank is taking all the necessary and instant steps to follow the direction of the RBI as fast as they can.” 

However, the directive orders of RBI do not affect user deposits in their saving accounts, FASTags, NCMC accounts, and wallets where the operating balances can be used. The parent company of Paytm will partner with other banks to run the business and not with PPBL. The next aim of One97 communication will be the expansion of financial services and payments with other banks.

Also Read: Interim Budget 2024-2025: Date, Time, and Live Speech Details

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