On Monday, shares of One97 Communications Ltd, which operates Paytm, fell more than 8% intraday before trimming losses to close 1% lower at ₹1,137.80 apiece on the National Stock Exchange. The decline followed the Reserve Bank of India’s (RBI) cancellation of Paytm Payments Bank Ltd’s (PPBL) licence.
But what triggered the action, and what does it mean for India’s fintech major? Mint breaks it down.
Why did the RBI cancel PPBL’s licence?
PPBL, launched in May 2017, had long been under regulatory scrutiny over its operational structure and dependence on its parent’s technology systems and data-sharing arrangements.
Over time, RBI flagged concerns including breaches of deposit limits and weak know-your-customer (KYC) controls, which it said weakened safeguards against money laundering risks. In October 2023, the bank faced a significant penalty for non-compliance.
The pressure escalated in January, when the RBI barred PPBL from fresh deposits, wallet top-ups and FASTag recharges. Since then, it has largely remained inactive, apart from existing customer balances still parked in accounts, estimated by some reports at around ₹800 crore.
The licence cancellation on Monday marked the culmination of this tightening.
How did Paytm respond to the regulatory crackdown?
Paytm had already begun unwinding its dependence on PPBL before the latest escalation.
After the January curbs, it quickly restructured its payments stack, moving UPI handles to partner banks, shutting wallet-linked operations, and dismantling inter-company arrangements tied to PPBL. It also exited board representation in 2024, wrote off its stake, and treated the bank as non-core.
The real shock, however, came earlier. The RBI’s 2024 crackdown wiped out a key arm of the business, sending the stock reeling by 20% at the time.
Had it surrendered the licence sooner, it may have spared itself some of the regulatory heat, and market pain, however short-lived.
How important was PPBL?
PPBL was central to Paytm’s early ecosystem, powering wallets, savings accounts, UPI infrastructure, fixed deposits and mobility-linked payments.
By 2020, it was India’s largest FASTag issuer with around three million tags. Its contribution to the platform was significant, though performance weakened over time. Revenue fell from ₹2,850 crore in Q3 FY24 to ₹1,500 crore in Q1 FY25, alongside an ₹840 crore loss.
Over the past two years, Paytm has reshaped its business mix and returned to profitability with a ₹123 crore profit a year later, shifting toward payments distribution, merchant acquiring, and loan sourcing.
What is a payments bank?
Payments banks are a differentiated licence category introduced in India alongside small finance banks to expand access to payments and deposit services.
They can accept limited deposits and offer savings and current accounts but cannot lend. Any move to full-scale banking requires conversion into a small finance bank before applying for a universal banking licence.
The model has been widely seen as a regulatory experiment, with mixed outcomes. Of the 11 licences issued in 2015-16, only five remain after Paytm’s exit.
What does this mean for Paytm now?
The payments bank had effectively capped Paytm’s lending ambitions by limiting its ability to lend on its own books, as Paytm could not legally own both a Payments bank and a licence for a non-banking financial company (NBFC).
Moves by rivals such as MobiKwik to secure a NBFC licence underscore how central lending has become to fintech profitability.
Its exit now removes that constraint. Analysts say this could open options for Paytm to pursue a lending licence or acquire an NBFC, allowing it a larger role in credit distribution.
For now, Paytm has not outlined its next move and has given no indication of its strategy.