Fintech Ecosystem To Face Consequences? 12 Founders Write Letter To RBI, FM & PMO

Prominent Founders of MakeMyTrip, Bharat Matrimony, CapitalMind, Innov8, GOQii and PB Fintech have collectively requested the Central Bank of India, Finance Ministry and Prime Minister Modi to review the recent penalties imposed on the payments bank by One97 Communications Ltd. Paytm is presently entangled by the Reserve Bank of India (RBI) scrutiny, due to its questionable role over irregularities in KYC norms, transaction identity, regulatory transaction cap and compliance issue. The major players in the sector are urging the central government of India to have a discussion and constructive implementation of appropriate measures by India's Fintech ecosystem.

Along with the request for reassessing the institution's directive, the Fintech Founders seek a reasonable time frame for Paytm Payments bank to correct the rectifications. The group collectively warns that the strict regulations on Paytm would discourage global investors by adversely impacting the potential for dollar investments. It would give rise to inconsistency and unpredictability in Indian Economy. The major signatories of the letter are big names in Fintech such as M. Janakiraman, Deepak Shenoy, Vishal Gondal, Ritesh Malik, Yashish Dahiya and Rajesh Magow. However, none of the requested government institutions have answered the queries of the prominent Fintech personalities so far.

The Reserve Bank of India (RBI) on Tuesday, asked the payments bank Paytm to pause its operations of accepting deposits, credit products and digital wallets. The company seeks permission regarding the license transfer for virtual wallets and Fastag payment services from the central bank. Paytm is facing stringent instructions from the RBI to cease further deposits, transfers, payments and top-ups after the end of this February month. Considering the stringent actions by RBI, the company expects a loss of Rs. 300 to Rs. 500 crores on its annual EBITDA ahead. Moreover, the company reported that they are in talks with other major players like Jio Financial Services (JFS) and HDFC Bank to sell its wallet business. Nonetheless, JFS denied the rumours through an official statement, which resulted in uplifting support for Paytm shares on Tuesday's session.

According to the allegations, thousands of accounts were activated by Paytm without proper verifications, and the company allowed multiple transactions using the same PAN card details amounting to crores of rupees. Moreover, the total value of transactions exceeded regulatory limits by crores. As per the Mint report, there is a total of Rs. 1,995 crores invested by Indian Mutual Funds, which is 0.06% of the equity assets under management by 19 AMCs. Among the large AMCs, the highest investment is made by Helios Capital at 2%, whilst big investment giants like LIC, DSP, Invesco, Axis Bank and Sundaram stayed away from the Chinese-backed large payment bank of India.

Sanjay Malhotra, Revenue Secretary of Paytm says, "If there is any action to be taken, law enforcement agencies will take it. Right now there is nothing. We have and continue to abide by Indian laws and take regulatory orders with utmost seriousness." Likewise, Bhavesh Gupta, the President and COO concluded, "We maintain multiple nodal accounts for various businesses that Paytm and the group entities do with large commercial banks, not just Paytm Payment Bank. We have three more banks in which we have already API connects on nodal businesses. All three banks are very interested in making sure that these nodal accounts, which have been instructed to be shut down in Paytm Payment Bank, could be moved to one of those three banks."

The filing clarified that neither the company nor its founder and CEO are under investigation by the Enforcement Directorate for money laundering. It acknowledged past inquiries into certain merchants/users on their platforms and emphasized cooperation with authorities during such investigations. Despite Paytm clarifying that there is no ongoing investigation by the Enforcement Directorate (ED) for money-laundering activities, the shares of One97 Communications Ltd. have tumbled more than 42% within five sessions since 1st February 2024. Compared to the previous year, Paytm shares are trading below 50% of the 52-week high posted last calendar year. Today, the company's share price ended at Rs. 451.15/-, a hike of 3.26% since the previous day. After JFS denied talks of buying Paytm yesterday, the company shares witnessed a breather after falling consistently since last Thursday. The company's market cap stands at Rs. 28.6 thousand crores on 6th February 2024.