Why RBI’s Digital Lending Norms May Not Affect Paytm, Explains Goldman Sachs

reserve Bank of India Released a framework to support the systematic development of credit delivery through digital lending methods, alleviating regulatory concerns, which has been strengthened.

below digital lendingThere are concerns regarding unbridled third-party engagement, misselling, data privacy violations, unfair business practices, charging exorbitant interest rates, and unethical collection practices.

Due to this, the Working Group of RBI recommended a framework for extending various permissible credit facilitation services to the digital loan ecosystem of RBI’s Regulated Entities (REs) and Loan Service Providers (LSPs) engaged by them.

Arafat Sayyed – Senior Research Analyst at Reliance Securities said, “RBI issued norms to regulate digital loans to crack down on the growing number of frauds and illegal activities. All loan disbursement and repayment only between borrower’s bank accounts to be executed and regulated entity without a pass-through or pool account with the lending service provider or any third party.”

Saurabh Puri, Chief Business Officer, Credit Cards, Zaigal said, “Digital Lending Applications (DLAs) powered by fintechs and regulated entities have brought innovation to the financial system. Digital lending applications are designed to harness the power of data and technological capabilities. Uninterrupted customer experience of borrowing. Lenders and borrowers benefit from seamless customer acquisition, loan appraisal, loan approval, disbursement, repayment and customer service.”

The RBI guidelines on digital lending are a step towards addressing these concerns.

Puri said, “At Zagal, we feel that these guidelines will bring in transparency and enhance customer confidence. The guidelines also demarcate the roles and responsibilities of regulated entities and LSPs. Overall, it will help the industry grow organically. , will nevertheless encourage innovation.”

Meanwhile, Madhusudan Ekambaram, Co-Founder and CEO, Creditbee, said, “Legitimate players like us are already adhering to these guidelines and our existing transparent and fair practices in digital and operations are further strengthened to strengthen customer trust. Will continue to refine the lending ecosystem to ensure healthy and sustainable development of the region.”

Paytm Share:

Closed on the stock of Paytm on Thursday 825.50 each on the BSE, down 0.19%. Shares have touched intraday highs and lows 841.50 per more 820 episodes during the day, respectively.

The market valuation of the company is approx. 53,562.63 crores.

Paytm shares have gained more than 5 per cent so far this week as compared to Friday’s close last week.

Should you invest in Paytm shares?

Analysts Manish Adukia, Rahul Jain and Harshita Vadher of Goldman Sachs said, “We see Paytm’s financial services business practices in line with key points as per the final guidelines issued by RBI (Reserve Bank of India) on digital lending. We feel These guidelines should result in limited-to-no impact on Paytm’s business/monetization model, and should help remove a major overhang on the stock.”

According to the trio, regulations remain a major focus area for Paytm investors, and recent developments such as digital lending guidelines, UPI through credit cards, RBI’s payment vision document, etc. have been largely neutral/positive for Paytm. Huh.

“We believe that the next catalyst could be a possible resolution to the user onboarding restriction on Paytm Payments Bank (PPBL), which Paytm recently mentioned that PPBL is making good progress. Also, on the regulatory front, MDR Removing any overhangs on (merchant discount rates; timeline unclear) could be another catalyst,” analysts said.

For Paytm, Goldman analysts said, one of the key findings from the RBI’s digital lending guidelines is that the revenue model of its BNPL business should be unaffected.

In its statement, RBI announced that any fees, charges etc. payable to LSPs in the credit arbitration process would be paid directly by the RE and not by the borrower.

“We note that Paytm’s BNPL revenue has 3 broad components: (1) convenience fee from the consumer; (2) late payment fee from the consumer; (3) MDR paid by merchants. The first two are charged by the lender. are shared with the borrower and Paytm, and in our view is in compliance with RBI guidelines,” the analysts said.

Further, he said, “From our reading, RBI guidelines do not regulate the third monetization cycle (MDR’s), and thus we do not see any revenue impact on Paytm’s BNPL product. However, we note that RBI As per the RBI guidelines, disbursement and repayment are required to be executed only between the bank account of the borrower and the regulated entity; we will wait for more clarity on the operational aspects, including whether the presence of nodal bank accounts is allowed or not.”

Following these, analysts said, “We are buying on the stock with a target price of Rs 1,100.”

In Q1FY23, the number of loans disbursed through Paytm’s platform grew to 8.5 million, representing an increase of 492% YoY and 30% QoQ. The value of loans disbursed increased 5,554 crore – an increase of 779% YoY and 56% QoQ, thus highlighting the increase in the average value of loans disbursed.

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