Paytm Payments Bank may approach RBI for small finance bank licence by June

“It (Paytm Payments Bank) does complete five years coming fiscal, and in that point in time, it will look forward to applying for a licence,” said the person.

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Both people declined to be named.

An email sent to Paytm Payments Bank seeking its response on the matter remained unanswered till the time of filing this story.

The company has charted out an ambitious plan to enter the lending business with business partners, added the second person.

“As and when that application is processed and we were to be given a licence we will obviously look at what we can do in building a loan business with our partners,” the person said.

SFBs are a separate segment of the banking industry created by the RBI for promoting financial inclusion by primarily undertaking basic banking activities to un-served and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised entities. Like other commercial banks, such banks can undertake all basic banking activities including lending and taking deposits.

There is no precedent of a payments bank applying for a small finance bank licence yet. Thus, the timeline of successful conversion into a small finance bank is uncertain and will likely stretch over a year, the people quoted above said.

As per the RBI’s guidelines for ‘on tap’ licensing of small finance banks in the private sector, existing payments banks that are controlled by residents and have completed five years of operations are eligible for conversion into small finance banks after complying with all legal and regulatory requirements.

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However, joint ventures by different promoter groups for the purpose of setting up small finance banks would not be permitted, the RBI had said in the guidelines.

Paytm Payments Bank commenced its operations on May 23, 2017 and will be eligible to apply for a small finance bank licence by May-June, said one of the people cited above. Paytm Payments Bank Chairman Vijay Shekhar Sharma held 51 percent stake in the company.

Analysts tracking the company said Paytm Payments Bank’s conversion into a small finance bank shall enable the company to build a sustainable business model.

Current norms permit payments banks to only accept deposits of up to Rs 2 lakh per person. Also, such entities are not allowed to lend and thus have to form partnerships with non-bank lenders and others to originate and source loans.

Presently, Paytm Payments Bank's partners include HDFC, Aditya Birla Capital, Hero Fincorp and Fullerton.

As per Paytm’s earnings presentation, loans amounting to Rs 2,181 crore were disbursed through Paytm during Q3FY22. In terms of volumes, over 4.4 million loans were disbursed through the platform in October-December.