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Non-bank lenders in India are looking at options other than Paytm for loan payments, worried about the regulatory crisis engulfing the company that has forced it to temporarily halt loan services, sources with direct knowledge of the matter said.

On January 31, Paytm’s banking unit was ordered by the central bank to close its operations due to ongoing rule violations, and a day later Paytm said it would not originate loans for “perhaps two weeks” to resolve operational issues. .

If Paytm’s lending partners distance themselves from the company, it would be a further blow to the app. Analysts said loan distribution fees contributed nearly a fifth of Paytm’s revenue in the latest quarter.

The non-bank lender has not terminated its contract with Paytm, but sources said it was unclear when it would be able to resume lending through the Paytm app.

“We have been talking to the company about the regulatory issues and would like to explore other options for loan disbursement until the issues are resolved,” said a senior executive from one of Paytm’s lending partners.

The executive was one of three sources at the non-bank lender who said options were being explored. They were not authorized to speak to the media and declined to be identified.

A Paytm spokesperson said new loans from lending partners have been on hold for several weeks, but the company said: “We would like to emphasize that this is only for operational reasons and our relationships with our lending partners remain intact.” “

Paytm has seven non-bank lending partners including Aditya Birla Finance, Hero Fincorp, Piramal Capital, Poonawalla Fincorp, Shriram Finance, SMFG India Credit and Tata Capital.

None of the non-bank lenders responded to Reuters’ requests for comment. Most also have partnerships with other digital payment companies.

Paytm, formally known as One 97 Communications, disbursed loans worth 155 billion rupees ($1.9 billion) on behalf of seven lenders in the October-December quarter, according to a company presentation to investors.

“Lending was expected to be the main driver of revenue in the near future and hence accounted for the majority of Paytm’s (market) valuation,” said Pranav Gundlapalle, senior research analyst at AllianceBernstein.

Paytm shares fell another 10% on Tuesday to a record low after brokerage Macquarie said the company faces a serious risk of customer churn. Since January 31st, the stock price has fallen by half.

It is not yet known how widespread the financial and reputational impact of Paytm Payments Bank’s closure will be on Paytm.

Owners of the bank’s 330 million digital wallets will be unable to add to their deposits after February 29, but will be able to withdraw money. The central bank said it would not review the decision to suspend banking operations, although the deadline may be extended to ensure a smooth transition for some banking-related services.

Having its own payments bank has enabled Paytm to process transactions at a lower cost than other digital payments companies. Paytm said it is working to secure new banking partners.

However, payments can still be made on the Paytm app using India’s popular Unified Payments Interface (UPI) digital payment system.

However, while the crisis has led to many merchants refusing to accept payments through Paytm, Walmart’s PhonePe and Google Pay have seen a surge in demand for their services.

© Thomson Reuters 2024

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