Paytm's loan section is causing unrest, which is causing its stock prices to fall. On January 31, 2024, Paytm Payments Bank Ltd. (PPBL) received a notification from the RBI directing it to cease all of its primary banking services. This letter from the central bank included a report from external auditors that highlighted ongoing material supervisory problems within the bank as well as persistent non-compliance issues.

What limitations had been placed in place?

The lending arm is subject to limitations that include a halt on deposits, credit transactions, fund transfers, and top-ups. Repaid instruments, wallets, FASTags, and National Common Mobility Cards are just a few of the services that will see a halt in functioning. Interest, cashback, and refunds, however, will still be credited, and the accounts will continue only be available for withdrawals and use.

Starting next month, services such as bill payments and UPI on the OCL and Paytm Payments platforms will stop. Nodal accounts, run by the parent company OCL and Paytm Payments Services, will be closed by February 29. Any remaining transactions and nodal accounts will be sorted out by March 15.

Why are there problems with the rules and regulations?

The part of the company that lends money has been told to stop its services for a month. But this isn't the first time the company has had problems with rules. Since it started its lending services in 2017, the company has faced issues with rules multiple times. These problems included not following identity verification rules and stopping new account creation. The recent notice from RBI talked about not following rules and supervision concerns. Paytm expects a possible impact of Rs 300 to Rs 500 crore on its yearly earnings due to these issues.

How Paytm's services compare to its banking side PPBL (Paytm Payments Bank Ltd.):

The news didn't make the stock market happy – Paytm's stock dropped almost 20% the next day. Vijay Shekhar Sharma, the boss, had to step in and explain that the problems only affected the part of the company that lends money, not the main Paytm services.

PPBL is like a money partner for Paytm, and Paytm owns 49%, while Shekhar owns 51%. PPBL keeps the money safe in Paytm's digital wallets.

People using the Paytm wallet can still spend the money they have. But they can't add more money to their accounts for now.

People are split on this

After RBI's notice, BharatPe founder Ashneer Grover said something that got people talking. He thinks actions like this could hurt India's fintech startups. He said, "Startups have been doing a lot for the country, creating jobs and value. Today, even top institutes like IIM and IIT are struggling to find jobs for people – we can't afford this overreach!".

But not everyone agrees. Some say you can't build businesses without following the rules. Being creative is good, but it shouldn't mean breaking laws to grow.

What does the future hold for the company?

Paytm Payments Bank Ltd. (PPBL) stopped its main services like deposits and credit transactions, making people worry about job losses. But, Vijay Shekhar Sharma, the boss, told employees in a report that there won't be any job cuts in the lending arm. He also mentioned talks with RBI and other banks are happening.

As the company faces problems, people might look for other options in digital payments. But, the big question in the news is whether rules for fintech companies should be made less strict.