According to people with firsthand knowledge of the situation, Indian non-bank lenders are considering alternatives to Paytm for loan disbursement because they are concerned about the regulatory issue that the company is facing and how it may affect lending services going forward. Due to consistent regulation violations, the central bank ordered Paytm's banking division to shut down on January 31. A day later, the company announced that it would not be making new loans for "maybe a couple of weeks" in order to address operational issues.
Another significant setback for the app would be if Paytm's lending partners decided to sever ties with the business. According to estimates, loan distribution fees accounted for about 25% of Paytm's income in the most recent quarter.
Although non-bank lenders have not cancelled their agreements with Paytm, insiders claim they are unsure of when they will be able to start making loans via the Paytm app again.
A top executive at one of Paytm's lending partners stated, "We have been speaking to the company about regulatory issues and until those are resolved, we want to stay away and explore other options for loan disbursal."
The non-bank lenders cited the executive as one of three sources stating that options were being considered. They declined to be identified and had no authority to speak with the media. Although new loans from lending partners have been suspended for a few weeks, according to a Paytm representative, the business "would like to stress upon the fact that it is solely due to operational reasons and our relationship with our lending partners remains intact."
Aditya Birla Finance, Hero Fincorp, Piramal Capital, Poonawalla Fincorp, Shriram Finance, SMFG India Credit, and Tata Capital are the seven non-bank lending partners of Paytm. When Reuters asked the non-bank lenders for comments, none of them answered. Most also have affiliations with other online payment companies.
According to a company presentation given to investors, Paytm, formerly known as One 97 Communications, disbursed loans totaling 155 billion rupees ($1.9 billion) on behalf of the seven lenders during the October–December quarter. According to AllianceBernstein senior research analyst Pranav Gundlapalle, "lending was expected to become the key driver of earnings in the near future and hence accounted for the bulk of Paytm's (market) valuation."
Following the warning from brokerage house Macquarie that the company faced a major danger of consumer flight, Paytm shares fell another 10% on Tuesday, reaching all-time lows. Since January 31, the stock's value has decreased by half. The extent to which Paytm Payments Bank's closure would affect the company's finances and reputation is still unknown.
After February 29, owners of the 330 million digital wallets with the bank will be able to withdraw their funds but not make new deposits. The central bank has stated that it will not revisit its decision to close the bank, even though the deadline may be extended to enable a more seamless handover of certain bank-related activities.
Paytm was able to handle transactions at a lesser cost than other digital payment companies since it had its own payments bank. According to Paytm, it is seeking to partner with additional banks.
However, payments utilizing India's widely used Unified Payments Interface (UPI) digital payment system are still possible on the Paytm app. Furthermore, as a result of the situation, many retailers are refusing to take Paytm payments, while demand for Google Pay and Walmart's PhonePe has increased.
