Any takeover of Paytm Payments Bank’s business likely to be a time-consuming affair

The takeover process of Paytm Payments Bank may take longer time than expected as a lot of formalities need to be completed by the acquirer. According to the regulations, banking licence and authorisation for wallet services are not tradable and transferable.

As on date, Paytm Payments Bank is one of the six payment banks (other five are Airtel Payments Bank, India Post Payments Bank, Fino Payments Bank, Jio Payments Bank, and NSDL Payments Bank). On January 31, the RBI directed Paytm Payments Bank to stop accepting deposits or top-ups in any customer accounts, wallets, FASTags, and other instruments after February 29. On February 12, RBI Governor Shaktikanta Das made it clear that clear that there is no review of the action taken against Paytm Payments Bank. A FAQ is expected to come any day and will deal with customer interest issues, said Das.

• Also read: Paytm hits record low after Macquarie downgrade on business viability concerns

A slow process

With such a stance, the buzz is that the business of Paytm Payments Bank will be taken over by other institutions. According to sources, if this happens, it will not be so quick. A source explained that taking over the business of a running entity by another entity requires a lot of formalities to be completed. “There are two key components – banking licence issued to run a Payments Bank and authorisation for wallet services. Both are issued in the name of an entity and are non-transferable and non-tradable,” he said.

This means, in the case of transfer, first both of these issued to the entity for Paytm Payments Bank must be annulled and second, a fresh application is to be made by the interested entity for bank licence and also for authorisation to run a wallet business. “This is the mechanism applicable for all kind of banks. Similar thing happened when Punjab and Maharashtra Cooperative Bank (PMC) was acquired by Centrum-BharatPe consortium and now it is running the business under a new small Finance Bank, Unity,” said another source.

• Also read: No review of action taken against Paytm Payments Bank, says RBI Governor

RBI’s guidelines for licensing of Payments Banks defines eligible promotes asexisting non-bank Pre-paid Payment Instrument (PPI) issuers; and other entities such as individuals / professionals; Non-Banking Finance Companies (NBFCs), corporate Business Correspondents(BCs), mobile telephone companies, super-market chains, companies, real sector cooperatives; that are owned and controlled by residents; and public sector entities may apply to set up payments banks.

Guidelines say apromoter/promoter group can have a joint venture with an existing scheduled commercial bank to set up a payments bank. However, scheduled commercial bank can take equity stake in a payments bank to the extent permitted under the Banking Regulation Act which is 30 per cent. Promoter/promoter groups should be ‘fit and proper’ with a sound track record of professional experience or running their businesses for at least a period of five years in order to be eligible to promote payments banks.

The minimum paid-up equity capital requirement  for payments banks is ₹100 crore. The promoter’s minimum initial contribution to the paid-up equity capital of such payments bank shall at least be 40 per cent for the first five years from the commencement of its business. Foreign investment also permitted in line with Private Bank.