Paytm payments bank eyes small fin model

BENGALURU Paytm want to convert your payment bank in a small financial bank since that will allow you to lend to your consumers and build a more profitable growth model, the founder and CEO of the company Vijay Shekhar Sharma He told TOI. This comes on the back of India Post Payments Bank waiting RBI approval to convert itself in a small financial bank , after finding the payment bank model unviable.

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



“We are keen to be a small financial 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 financial bank s 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 payment bank to be small financial bank s 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 payment bank and the rest is held by One97.

The latest development also underscores the constant scrutiny of the payment bank model, originally conceived by former RBI governor Raghuram Rajan. After the RBI granted in-principle approval to set up payment bank s to 11 applicants, three applicants dropped out, including Sun Pharma promoter Dilip Shanghvi. Apart from Airtel and Paytm, Fine , Jio and India Post are operational payment bank s. Aditya Birla Payments Bank has already decided to shut operations. Compared to payment bank s, small financial bank s 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 financial bank s 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 payment bank , it has been realised that in order to achieve the underlying vision, there is immediate need to allow payment bank s to offer small-value credit to its customers. In the absence of such provision for payment banks, it is relevant to upgrade eligible payment bank s into small financial bank s. 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 payment 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 payment bank entity houses Paytm ’s e-wallet business, which held deposits of Rs 1,700 crore in the financial year ending March 2019.

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