Last Updated on Mar 15, 2022 by Aradhana Gotur

Paytm, India’s largest IPO has managed to be the talk of Dalal Street ever since its listing, given the unyielding freefall in its stock price. This time around, it nosedived ~13% on Monday after its digital processor Paytm Payments Bank allegedly violated data storage rules.

On 11 March 2022, the Reserve Bank of India (RBI) had restricted Paytm from the payments bank against acquiring new users. This begs investors to pay attention to internal controls. Besides, the bank is also required to get its IT system audited by an IT audit firm.

What went wrong?

Paytm Payment’s Bank’s servers shared information with China-based entities that indirectly held a stake in the bank. However, Paytm’s founder and majority shareholder Vijay Shekhar Sharma has denied this allegation. Moreover, the company has onboarded several customers without adequate KYC documentation, resulting in potential money laundering.

As per its website, Paytm Payments Bank has over 300 mn wallets and 60 mn bank accounts. Ironically, its website also refers to the payment bank as “India’s most sincere bank” even when it has 100 mn KYC-compliant customers and adds ~4 lakh new users to its platform monthly.

As per its website, Paytm Payments Bank has over 300 mn wallets and 60 mn bank accounts. It has 100 mn KYC-compliant customers and adds ~4 lakh new users to its platform monthly. Click To Tweet

How did Paytm respond?

The entity’s parent company, One97 Communications, is reportedly taking steps to comply with the RBI directions. Meanwhile, new users can still sign up for the Paytm app, transact via UPI, and link them to their registered bank accounts or third-party payment instruments.

The company believes that RBI’s restrictions on its payments bank business will not have a material impact on its overall business. Nonetheless, this wasn’t welcome news for Paytm, the new-age tech company that has been struggling even to sustain revenue and generate profit.

Data localisation issues

Paytm is not the first company to be alleged about violating data storage rules in India. In fact, the issue has significantly increased in the country over the last decade. Previously, the RBI had penalised foreign card-payment network companies, including Visa, American Express, and Mastercard, for not complying with India’s data storage norms.

Given India’s changing technology landscape, the government is considering introducing a new privacy bill and scrapping the current version of the personal data protection bill 2019.

Drop in share price and valuation

Compared to Paytm’s valuation of Rs 1.5 lakh cr. at the time of its IPO, the stock’s valuation is now below a whopping Rs 44,000! Talking about its share price, there has been a 70% drop compared to the issue price of Rs 2,150.

Given its plan to apply for a small finance bank licence, how will RBI’s direction on Paytm impact its plans?

Aradhana Gotur
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