Axis Bank’s income will get a “fee and float” boost as One 97 Communications Limited (OCL), which owns the Paytm brand, has decided to move its nodal account to the bank.

The private sector bank will earn a fee from OCL due to merchant settlements happening through the nodal account. Further, the float (funds) available in this account can be deployed by the bank for a day or two in the money markets to earn income.

Following the Reserve Bank of India’s severe strictures against Paytm Payment Bank Ltd. (PPBL), OCL has decided to move its nodal account to Axis Bank.

Prior to this, OCL had its nodal account with PPBL. The central bank’s supervisors looked askanced at this arrangement, as it flouts the principle of an arms-length relationship between a banking entity and a large shareholder.

OCL has a 49 per cent equity interest in PPBL, and Vijay Shekhar Sharma (OCL founder) has the remaining 51 per cent. PPBL is an associate company of OCL.

Fee and Float advantage

Banking expert V Viswanathan said, Axis Bank could gain as float funds of payment aggregator Paytm will be available in the nodal account till payments are made to sellers. Further, the bank will get fees for receiving and settling funds.

The payment aggregator cannot exercise any rights on the nodal account as it is a collection account.

Market experts say Axis Bank would have quoted the lowest fee to bag the nodal account. The bank stands to gain as it will be able to harness the nodal account to cross-sell products and services to Paytm merchants.

RBI cracks the whip

The RBI cracked the whip on PPBL as its Comprehensive System Audit report and subsequent compliance validation report of the external auditors revealed persistent non-compliances and continued material supervisory concerns in the bank.

So, the central bank invoked powers on January 31, 2024, under Section 35A of the Banking Regulation Act, 1949, imposing business restrictions on PPBL.

Under the aforementioned section, the RBI, in the public interest or in the interest of banking policy, can act to prevent the affairs of any banking company from being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company.

This section also allows RBI to “secure the proper management of any banking company generally... it may, from time to time, issue such directions as it deems fit, and the banking companies or the banking company, as the case may be, shall be bound to comply with such directions.”

Nodal account: In talks with other banks

OCL, in a statement on February 17, said both OCL and Paytm Payment Services Ltd. (which provides payment aggregator services and payment gateway services) are also in discussions with other banks to evaluate a second partner for nodal / escrow services.

The company noted that consumer payments for merchant transactions are typically collected in a dedicated account. This arrangement enables Paytm to seamlessly transition its merchants’ settlements to Axis Bank, thereby facilitating business operations for the merchants.