Paytm- What is Wrong?

Paytm, one of India's most hyped-up startup that started a new age of digital transactions in the country. Back in 2021, the startup's IPO was open for subscription at a price of Rs. 2080-2150/share.

The Rs.18,300Cr. issue made it the largest public issue in India's corporate history!

Paytm, which was once considered the future of Indian Fintech is now at an all time low, with its stock hitting a lower circuit limit for 3 consecutive days! To put things into perspective, the situation is so bad that the Bombay Stock Exchange (BSE) had to change the daily limit on Paytm shares from 20% to 10%.

The Paytm stock is now trading at just 438 rupees (around $5) a share. The crash over the past two days has wiped out $2.4 billion in market capitalization alone, leaving the company worth just $3.3 billion.

What happened? What went wrong?

To understand this, we'll have to go all the way back in time to 2017 when the company commenced its services as a payments bank in form of a joint venture with founder Vijay Shekhar Sharma and the problems started arising just one year after this launch, when in 2019, the Reserve Bank of India (RBI) imposed a Rs.1Cr penalty on the company for violating the basic conditions needed to operate as a bank in the country.

The same fine was again imposed in 2021 when RBI found out that Paytm had submitted false information to it.

Subsequent investigations unearthed concerning lapses in technology, cybersecurity, and KYC anti-money laundering compliance in the later part of 2021. Even as these concerns remained, RBI's inspection revealed that there was no separation in servers or physical space occupied by the bank and other One 97 group entities. Consequently, RBI imposed supervisory restrictions on the company. This is followed by another warning and a resulting fine of Rs. 5.39Cr from the central bank when it read the auditor's reports and finds out that the company still wasn't following all the compliances and KYC norms.

Because Paytm was not complying with the KYC norms and other RBI-Issued compliances for banks, a number of dormant accounts were made on Paytm Banks and these accounts were further used for illegal activities such as money laundering. Although no real investigation has been undertaken (till now), the issue of money laundering is still a concern. Furthermore, these dormant accounts can also be used as mule accounts for transferring illegal money. Thus, the Reserve Bank of India had already given 4 warnings to the company and the company failed to comply.

It was the fifth warning issued by the bank however that gave a huge blow to the company and became the reason behind the pithole that the company is in right now.

RBI has now directed Paytm Payments Bank to stop accepting deposits or top-ups in customer accounts, wallets, FASTags, and other instruments after February 29.

Perhaps, this is all we know as of now, a reply from Paytm's end is yet to come and we there are still speculations on the future of the Fintech Giant. Will it merge with another bank? Will there be a takeover? All of these unanswered questions will be answered only as time passes by.

Do comment your personal opinions about this entire situation!