Once this happens, it can undertake lending activities

Paytm Payments Bank, an associate entity of IPO-bound Paytm, may consider applying for conversion into a Small Finance Bank (SFB) on completion of the required time period under law.

If the firm is successful in conversion, Paytm Payments Bank will be able to undertake additional banking activities such as lending.

The plan to consider applying for conversion into a SFB has been disclosed in the draft red herring prospectus filed by One 97 Communications (Paytm) with SEBI recently for the digitial financial services major’s ₹16,600 crore initial public offering (IPO).

Currently, under the existing RBI guidelines for ‘on tap’ licensing of Small Finance Banks in private sector, existing payments banks with successful track record of at least five years can apply for conversion into SFB.

Moreover, an internal working group of the RBI had recently suggested that a successful track record of three years may be considered sufficient for such conversion.

It maybe recalled that Paytm Payments Bank got its licence to operate as a payments bank from the RBI in 2017.

Net profits

Meanwhile, for the year-ended March 31,2021, Paytm Payments Bank, which has the largest scale among all payment banks, had recorded net profit of ₹17.88 crore on sales of ₹1,987.84 crore, financial data disclosed in the prospectus showed.

One 97 Communications owns 49 per cent equity interest in Paytm Payments Bank, while the rest 51 per cent is owned by Vijay Shekhar Sharma.

The objective of a payments bank is to widen the spread of payment and financial services to small business, low income households, migrant labour workforce in secured technology driven environment. A payments bank is like any other bank without involving any credit risk. It can carry out most banking operations but cannot provide loans or issue credit cards. It can accept demand deposits up to ₹2 lakh, offer remittance services, mobile payments/transfers/purchases and other banking services like ATM/debit cards, net banking and the third party fund transfers.

As at end-March 2021, Paytm Payments Bank had 6.4 crore bank accounts and demand deposits of ₹5,200 crore (including savings accounts, current accounts, fixed deposits with partner banks and balance in wallets). As of March 31, 2021, more than 50 percent of its registered merchants (over two crore20 million) hold an account with Paytm Payments Bank.