One 97 Communications will pause on new loans for a few weeks till the resolution of operational issues, and till partner banks are confident of continuing their association with the company given the material governance concerns.

Meanwhile, the impact of RBI’s directives on associate company Paytm Payments Bank (PPBL) is expected to be around ₹300-500 crore on the annual EBITDA “in a worst case scenario”.

“There is an impression that Paytm Payments Bank and paytm are one but by structure, but it is not. It is an associate company. For Paytm Payments Bank, there is independent compliance, risk team and other requirement,” President and Group CFO Madhur Deora said in an analyst call, adding that financial services such as loan distribution, insurance distribution and equity broking are not related to PPBL.

Over the near to medium term, reduction in on-book operations and other marketing activities such as rewards and cashbacks should help off-set some of the EBITDA impact, Deora said, adding that One 97 should be able to revert to growth in about six months.

Regulatory action

The central bank, on January 31, 2024, asked Paytm Payments Bank to stop offering banking services effective March 2024, citing concerns with respect to breach of and non-compliance with regulatory guidelines. This comes after the regulator had in March 2022 asked the bank to stop onboarding new customers.

President and COO Bhavesh Gupta said that the concerns pertain largely to the lack of sufficient controls and risk management practices with respect to the growth and scale of the payments bank. He added that the company is engaging with the regulator and wants to operate its business “based on how the regulator wants us to operate” to ensure that such an action is not taken again.

It is a learning experience for the company, which has been working to improve its process and management based on regulatory insights over the past two years. This exercise will help the company become better and more capable in the regulator’s eyes, Founder and CEO Vijay Shekhar Sharma said.

On concerns regarding customer and merchant panic, Deora said that the company has been aggressively working to communicate with merchants and all stakeholders to avoid misinterpretations regarding the impact of the directions.

Operational impact

Since the March 2022 directive, One 97 has been working with other banks to reduce the reliance on PPBL. While PPBL was one of the key banks for operations, this regulatory action will speed up the transition process and the company will only work with other banks hereon. One 97 and Paytm Payement Services are already in the process of moving nodal accounts to other banks, and marketing business services will not be affected, it said.

He added that the next phase for One 97 will be to expand its payments and financial services business and continue to expand third-party bank partnerships. The offline merchant payment network has offerings such as QR, Soundbox and Card Machine, which will continue as usual and where new merchants may continue to be onboarded.

“On the behalf of paytm, this is more of a speed bump, but we believe in partnership of the banks and we will be able to see to the same in the next few days,” Sharma said adding that there discussions are also on between the bank and RBI to figure out transfer of deposit and wallet accounts of existing customers to other banks.

While UPI infrastructure and online transitions for merchants should be easier and only take a few days, offline migration to other banks, especially for QR codes powered by PPBL, will be a larger exercise and take longer, Gupta said adding that new acquisition should start in a week or two. One 97 has sought guidance from both RBI and NPCI to ensure a seamless transition and the company should have more clarity on the same by next week, he added.