Paytm Payments Bank’s new status may not help in revenue growth

A man rides a bicycle past a bus stop with Paytm advertisements in Mumbai, India, November 10, 2021.
A man rides a bicycle past a bus stop with Paytm advertisements in Mumbai, India, November 10, 2021.
Image: REUTERS/Niharika Kulkarni
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The Paytm Payments Bank has received approval from the Reserve Bank of India (RBI) to function as a scheduled bank. But this may not help it to generate meaningful revenues.

While the move is aimed at expanding its financial services operations and facilitating financial inclusion, it still cannot offer lending products.

“The inclusion of Paytm Payments Bank…will help us innovate further and bring more financial services and products to the underserved and unserved population in India,” said Satish Kumar Gupta, managing director and CEO of Paytm Payments Bank.

Payments banks face a challenging business model as they have an upper limit of 1 lakh rupees ($1322) for deposits intake, while they aren’t allowed to lend or issue credit cards.

“…typically such deposits get deployed in government securities and, hence, from this move, there will not be a significant rise in terms of earnings or scale of operations. This will not be material enough,” the Financial Express newspaper quoted a senior analyst at a domestic rating agency.

What does it mean for Paytm?

Paytm, which launched its initial public offer last month, faced questions over its expensive valuations, especially since it is a loss-making company.

As a scheduled payments bank, Paytm Payments, like regular commercial banks, will now be subject to the RBI’s liquidity management operations. The perception of inching closer to a banking entity may work in its favour, analysts said.

“This may not have any immediate benefits, but looks like it is aimed at short-term liquidity management,” said Kajal Gandhi, an analyst at ICICI Securities.

The Paytm Payments Bank has emerged as one of the largest enablers of digital payments in the country with its payment instruments such as Paytm Wallet, Paytm FASTag, net banking, and Paytm UPI. The payments bank has created over 155 million Paytm UPI handles, and powers 333 million Paytm Wallets.

However, the debate on digital payment companies dominating the banking space is growing louder.

In June, the RBI approved the takeover of the beleaguered PMC Bank by a joint partnership of Centrum Financial Services and fintech BharatPe and granted the former an in-principle approval to set up a small finance bank.

At its monetary policy meeting on Dec. 8, the RBI announced it would form a panel to study the charges on digital payments. This comes against the backdrop of a belief that the current structure is expensive, given the surge in transaction volumes.