Paytm payments bank eyes small fin model

BENGALURU: Paytm wants to convert its payments bank into a small finance bank as that will allow it to lend to its consumers and build a more profitable growth model, the firm’s founder and CEO Vijay Shekhar Sharma told TOI. This comes on the back of India Post Payments Bank waiting for the RBI approval to convert itself into a small finance bank, after finding the payments bank model unviable.

Sharma said the payments bank will approach the government and the banking regulator for a small finance bank licence as it can leverage the model using technology enabled low-cost operations — a central theme of small finance banks, according to the RBI.

“We are keen to be a small finance bank. If the regulator gives the nod, we will definitely want to pursue this,” he said. After the regulator had notified a discussion paper on small finance banks for public comments earlier in the year, Paytm submitted its feedback to the central bank highlighting such a need. The RBI has said it can allow payments bank to be small finance banks if the model meets its guidelines.

The development follows a $1-billion fund-raise by Paytm in fresh round with plans for a major play in lending and financial services. Paytm’s parent One97 Communications is also looking to cut operational losses by a third to at least $350-400 million (Rs 2,492-2,848 crore) this financial year as investor sentiments turn cautious globally. Sharma owns 51% of the payments bank and the rest is held by One97.

The latest development also underscores the constant scrutiny of the payments bank model, originally conceived by former RBI governor Raghuram Rajan. After the RBI granted in-principle approval to set up payments banks to 11 applicants, three applicants dropped out, including Sun Pharma promoter Dilip Shanghvi. Apart from Airtel and Paytm, Fino, Jio and India Post are operational payments banks. Aditya Birla Payments Bank has already decided to shut operations. Compared to payments banks, small finance banks can offer micro-loans and issue credit cards to their customers along with the ability of accepting deposits of over Rs 1 lakh. One of the priorities for small finance banks would be to serve basic banking to the under-served and un-served population in the country, especially small businesses and farmers.

“The very purpose of introducing differentiated banks was financial inclusion. After becoming a payments bank, it has been realised that in order to achieve the underlying vision, there is immediate need to allow payments banks to offer small-value credit to its customers. In the absence of such provision for payment banks, it is relevant to upgrade eligible payments banks into small finance banks. With our technology enabled low-cost operations, we should be able to drive higher distribution outreach,” Sharma said. This, he added, will lead to a profitable growth model.

To be sure, for the year ending March 2019, Paytm’s payments bank saw profits of Rs 20 crore on a revenue of Rs 1,668 crore according to regulatory documents sourced from business intelligence platform Tofler. As TOI reported in May, most of the revenue and profit was due to treasury incomes, and deposits remained low at Rs 500 crore. Additionally, the payments bank entity houses Paytm’s e-wallet business, which held deposits of Rs 1,700 crore in the financial year ending March 2019.