One of the significant lending partners of Paytm, Aditya Birla Finance, has reportedly invoked loan guarantees that Paytm provided to cover repayment defaults from customers, as per a report by the Economic Times.
Signaling stress in the company's lending business, other lenders such as Piramal Finance and Clix Capital have also decided to bring a halt to their partnership with Paytm, as per the report. This comes amidst the recent ban imposed by the Reserve Bank of India on Paytm Payments Bank due to persistent noncompliance with regulations. Owing to this, there has also been an overall reduction in unsecured consumer lending, as per the report.
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Speaking to the Economic Times, a source said, "Aditya Birla Finance could have possibly invoked a large sum amounting to hundreds of crores of rupees. This will have a severe impact on the company’s financials amid a wider clampdown by the central bank on the sector.”
Fintech platform Paytm offers merchant loans, consumer loans, and buy now, pay later credits to users. The company disbursed Rs 15,536 crore in loans in the December quarter last year; this was up by 56 percent from Rs 9,958 crore a year earlier, as per the report.
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On being asked about the ongoing developments, a spokesperson from Paytm told the Economic Times, “We categorically reject all speculations concerning our lending business. We have resumed lending services with a select few partners and are actively engaged in discussions to expand with the remaining lending partners.”
The spokesperson further said that Paytm does not provide a First Loss Default Guarantee (FLDG) to lenders, as their role is strictly that of a distributor. In compliance with the Reserve Bank of India's guidelines on digital lending, unregulated companies such as Paytm are permitted to provide non-banking finance companies (NBFCs) they collaborate with with up to 5% of their DLG (default loss guarantee) coverage.
Paytm has been in deep trouble for a while. Recently, the company also saw the resignation of several top leaders, including President and COO Bhavesh Gupta, CBOs Bipin Kaul, and Ajay Singh. Similarly, as per the National Payment Corporation of India, the company’s UPI transactions fell to 1,117.13 million transactions in April from 1,230.04 million transactions in March.
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