Domestic brokerage firm Bernstein in its recent research report noted that the Reserve Bank of India (RBI) directive is only intended to restrict the activities of Paytm Payment Bank (PPBL) and not aimed at the other functions of Paytm’s platform including UPI payments and loan distribution.
Paytm works with several banks along with its associate bank. The company has been working with other banks for the past two years and will now accelerate the plans and completely move to other bank partners, it added in a report.
The next phase of the company’s journey is to continue to expand its payments and financial services business, only in partnerships with other banks, the statement read.
"For other products, we assume a reasonably smooth transition in Paytm’s partnership from PPBL to another bank(s) including the acquisition of required licenses (e.g. TPAP for UPI) and therefore expect the long-term impact to traffic and payment volumes to be limited," the brokerage firm further added.
The brokerage firm also iterated that there is a precedent of a competitor (PhonePe - a private company) which is undergoing a similar transition in the past. Mentioning the migration of merchants from PPBL to another partner bank, the domestic research and brokerage firm said that the changes that Paytm needs to effect for its merchants would be similar or less complicated than the changes required for the merchant to migrate to a competitor.
Showing the confidence in the fintech giant, it further said that, Paytm has the largest on-the-ground sales team (vs. peers) to execute this change. The company has a healthy cash balance (Rs 100-150 per share) — this provides the absolute floor as well as reasons to be confident that there is little reason for a distressed sale. Paytm's cash balance has increased to Rs 8,901 crore as of the quarter ending December 2023, as compared to Rs 8,754 crore as of the quarter ending September 2023.
It may be noted that following the Reserve Bank of India’s recent direction to Paytm’s associate Bank dated Jan 31, 2024, PPBL has been taking immediate steps to comply with RBI directions, including working with the regulator to address their concerns as quickly as possible, the firm further added in its report.
