Bengaluru: Paytm wants to convert its payments bank into a small finance bank as that will allow it to lend to its consumers and build a more profitable growth model, the firm’s founder and CEO Vijay Shekhar Sharma told TOI. This comes on the back of India Post Payments Bank waiting for the RBI approval to convert itself into a small finance bank, after finding the payments bank model unviable.

Sharma said the payments bank will approach the government and the banking regulator for a small finance bank licence as it can leverage the model using technology enabled low-cost operations — a central theme of small finance banks, according to the RBI.

“We are keen to be a small finance bank. If the regulator gives the nod, we will definitely want to pursue this,” he said. After the regulator had notified a discussion paper on small finance banks for public comments earlier in the year, Paytm submitted its feedback to the central bank highlighting such a need. The RBI has said it can allow payments bank to be small finance banks if the model meets its guidelines.

The development follows a $1-billion fund-raise by Paytm in fresh round with plans for a major play in lending and financial services. Paytm’s parent One97 Communications is also looking to cut operational losses by a third to at least $350-400 million (Rs 2,492-2,848 crore) this financial year as investor sentiments turn cautious globally. Sharma owns 51% of the payments bank and the rest is held by One97.

The latest development also underscores the constant scrutiny of the payments bank model, originally conceived by former RBI governor Raghuram Rajan. After the RBI granted in-principle approval to set up payments banks to 11 applicants, three applicants dropped out, including Sun Pharma promoter Dilip Shanghvi. Apart from Airtel and Paytm, Fino, Jio and India Post are operational payments banks. Aditya Birla Payments Bank has already decided to shut operations. Compared to payments banks, small finance banks can offer micro-loans and issue credit cards to their customers along with the ability of accepting deposits of over Rs 1 lakh.

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