Paytm's key lenders may have invoked loan guarantees: Report

Aditya Birla Finance may have invoked the loan guarantees which fintech firm Paytm had provided to the lender in lieu of repayment defaults from customers, reported The Economic Times. Aditya Birla Finance is one of the key lending partners for One 97 Communications-owned Paytm.

Paytm loan guarantees invoked

Other lenders like Piramal Finance and Clix Capital have also retracted their partnership with Paytm. This comes after the Reserve Bank of India imposed restrictions on the Paytm Payments Banks putting pressure over the firms' lending business.

The Economic Times, quoted a person with the knowledge of the matter and said that this move by the lenders will have a severe impact on the company’s financials amid a wider clampdown by the central bank on the sector.

As per RBI's digital lending rules unregulated entities like Paytm are allowed to offer around 5% DLG (default loss guarantee) cover to the non-banking finance companies (NBFCs) they partner with. By this, Paytm had given a similar guarantee to Aditya Birla Finance. According to The Economic Times, these guarantees are structured through collection commitments for loans sourced by the platform which are not repaid on time and ABFL is deducting funds from pay-outs.

Meanwhile responding to The Economic Times' queries a Paytm Spokesperson said that Paytm does not provide a First Loss Default Guarantee (FLDG) to lenders.

"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. Paytm does not provide a First Loss Default Guarantee (FLDG) to lenders; our role is strictly that of a distributor", Paytm Spokesperson told The Economic Times.

Arrangement between fintechs & lenders

The arrangements are often registered in the books of the lenders and the repayments are also sent directly to them. The fintech firm receives a commission. In December, Paytm said that it makes 2.5-3.5% of loan value upfront on disbursement and on collection it fetches another 0.5-1.5%.

In November, RBI increased the risk weightage on unsecured consumer lending. This pushed the NBFCs to set aside a higher amount of capital against such loans.

“Overall, we have become cautious about unsecured consumer lending and are focusing on business loans and housing loans. With regards to fintechs, we have slowed down even more given they cater to riskier segments of our customers,” a senior executive at a NBFC told The Economic Times.

Paytm currently offers, consumer and merchant loans as well as buy-now-pay-later short-term credit to users. In the December quarter last year, it disbursed Rs 15,535 crore of loans, up 56% from Rs 9,958 crore a year earlier. In terms of revenue, Paytm generated Rs 607 crore from its financial services business in the quarter, accounting for 21% of its total operational revenue of Rs 2,850 crore.

Also Watch: Amid RBI's regulatory action, Paytm's UPI transactions fall in February