Will NPCI’s nod to onboard new customers end struggle for Paytm?

NPCI greenlights Paytm: On 22 October, Paytm announced that it had received approval from the National Payments Corporation of India (NPCI) to onboard new UPI users, provided it complies with all procedural guidelines and circulars.

The recent update has brought much-needed relief to Vijay Shekhar Sharma’s fintech platform, which once rose to such prominence that it became synonymous with India’s Unified Payment Interface (UPI). 

However, as the market welcomed new players and competition intensified, the Reserve Bank of India's tightening regulations on fintech companies began to take effect. This ultimately led to Paytm Payments Bank, the banking arm of Paytm, being forced to cease operations and halt the onboarding of new customers starting in early 2024.

Why did Paytm Payments Bank shut down? 

Paytm Payments Bank was shut down following directives from the Reserve Bank of India ( RBI ) due to "non-compliance issues and concerns." According to the reports, many accounts were opened on the platform without proper identification, raising concerns about possible involvement in illegal activities like money laundering. 

The Enforcement Directorate (ED) and the Prime Minister's Office have been alerted about these findings. Revenue Secretary Sanjay Malhotra stated that the ED would investigate the bank. The investigation revealed several accounts linked to the same ID and large transactions, as well as an unusually high number of inactive accounts.

Will Paytm be back to per-January operations? 

Not exactly. With this update, Paytm will be allowed to rejoin the UPI ecosystem, but only as a Third-Party Application Provider (TPAP). In March 2024, the NPCI permitted Paytm to continue facilitating UPI transactions, but through four partner banks – SBI , Axis Bank , HDFC Bank , and YES Bank – rather than its own Paytm Payments Bank. This decision does not allow Paytm to revive its Payments Bank.

According to a letter shared on BSE, the company also informed its shareholders that the approval from NPCI is subject to adherence to all NPCI procedural guidelines and circulars issued from time to time, including guidelines and circulars issued specifically on risk management, brand guidelines for app and QR, multi-bank guidelines, TPAP market share and customer data.

First profit fails to impress investors, stock plunge

Shares of Paytm's parent company, One 97 Communications, dropped nearly 6 per cent on 22 October following the release of its September quarter results. The company posted a net profit of Rs 930 crore in Q2 FY25, a major uptick from a net loss of Rs 290.5 crore during the same period last year. 

However, this turnaround was primarily driven by a one-time gain of Rs 1,345 crore from the sale of Paytm's movie ticketing business to Zomato . Without this gain, Paytm would have reported a net loss of Rs 415 crore, which is higher than the loss it posted in the same quarter last year. This led to early selling pressure on the stock.