Money & Banking

One 97 Communication’s Paytm Payments Bank explores possibilities for conversion into SFB

Our Bureau Kolkata | Updated on November 26, 2021

Founder and CEO says becoming a small finance bank would solve a lot of payment problems

Paytm Payments Bank, an associate entity of the recently listed Paytm (One 97 Communications), is exploring possibilities for conversion into small finance bank and providing more services and offerings to customers.

According to Vijay Shekhar Sharma, Founder and CEO, Paytm, a conversion into small finance bank would help it solve a number of payment problems and also facilitate more services to its customers.

Solve payment problems

“A banking licence is an opportunity or decision which the regulator Reserve Bank of India gives to entities….so it would not be right on my part to comment on applying for a banking licence. But if we can become a small finance bank then we can solve a lot of payment problems and there are a lot of other things we can do,” Sharma said when responding to a question of whether the company would apply for a banking licence moving forward.

He was addressing the annual session and AGM of the Indian Chamber of Commerce virtually on Thursday.

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The plan to consider applying for conversion into a SFB was disclosed in the draft red herring prospectus filed by One 97 Communications (Paytm) with SEBI before its initial public offering (IPO).

Five-year track record necessary

According to existing RBI guidelines, for ‘on tap’ licensing of small finance banks in the private sector, existing payment banks with a successful track record of at least five years can apply for conversion into SFB. An internal working group of the RBI had recently also suggested that a successful track record of three years may be considered sufficient for such conversion.

It may be recalled that Paytm Payments Bank got its licence to operate as a payments bank from RBI in 2017.

As per information available on its website, Paytm Payments Bank has over 100 million KYC customers with 0.4 million users added every month.

Payment-led model preferable

As at end-March 2021, Paytm Payments Bank had 6.4 crore bank accounts and demand deposits of ₹3,200 crore (including savings accounts, current accounts, fixed deposits with partner banks and balance in wallets).

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According to Sharma, a payment-led credit business would be far more scalable as compared to a bank-based credit model as the payment-led model helps ascertain the creditworthiness of a customer.

“It is an obligation for a company like Paytm to discover and serve the underserved population by providing them access to finance,” he said.

Published on November 25, 2021

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