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Paytm Declines NBFC License, Opts Out of Direct Lending
One97 Communications, the parent company of digital payments firm Paytm, has clearly stated it will not pursue a Non-Banking Financial Company (NBFC) license. This decision, revealed during the company's latest earnings call, goes against the trend of many fintech firms seeking lending power. The move comes as rival MobiKwik recently received approval from the Reserve Bank of India (RBI) for its own NBFC license. This approval lets MobiKwik start its own lending division to offer more credit and likely boost profits with in-house operations. Paytm's management, however, seems focused on its main payment and financial service distribution network rather than originating loans directly.
Q4 FY26 Results: Profit Falls, Revenue Grows
Paytm's financial results for the fourth quarter ended March 2026 showed a dip in profit compared to the previous quarter. Net profit fell 18.2% to Rs 183 crore, down from Rs 225 crore in the prior quarter. This profit decrease happened even as revenue from operations grew 3.2% to Rs 2,264 crore from Rs 2,194 crore in Q3 FY26. Revenue growth year-over-year was stronger, up 18.4% to Rs 2,264 crore from Rs 1,912 crore in Q4 FY25. However, costs are increasing, with payment processing fees up 33% year-over-year and marketing expenses rising 18% in the quarter. For the full fiscal year 2026, Paytm reported its first annual profit of Rs 552 crore on Rs 8,437 crore in revenue. Despite this annual profit, investor concerns remain about its valuation and ability to consistently generate earnings, indicated by its negative P/E ratio.
Paytm's Strategy vs. Fintech Rivals
By not seeking an NBFC license, Paytm is taking a different path than rivals like MobiKwik, which plans to use its new license for direct lending and better margins. India's fintech sector is increasingly focused on credit, with payment systems acting as a base for lending services. Paytm has a large user base (7.7 crore monthly transacting users) and a broad payment network. However, avoiding direct lending means giving up ground in a fast-growing, high-margin area. This might mean more reliance on transaction fees, which are becoming standard in the competitive UPI market. Competitors like MobiKwik are actively growing their credit business to boost profits through their own lending operations. MobiKwik's FY24 revenue stood at Rs 890 crore with a net profit of Rs 14 crore.
Concerns Over Valuation and Costs
Despite a 'Hold' rating from MarketsMojo and mostly positive analyst views leaning towards 'Buy', several concerns remain. Paytm's stock trades at a premium, with a price-to-book ratio of 4.6, seen as expensive compared to its peers. The company also has high leverage. Its debt-to-equity ratio is 2.21, and its interest coverage ratio is -59.90, meaning it has limited ability to pay its debts. The sequential profit drop in Q4 FY26, along with higher payment processing and marketing costs, shows ongoing margin pressures that could hinder profit growth. By not getting an NBFC license, Paytm may miss a key way to diversify revenue and increase margins, which competitors are pursuing. This could limit its long-term growth in the fast-changing, credit-focused fintech market. Analysts at Citi and Jefferies keep 'Buy' ratings with price targets suggesting potential gains, but note higher marketing costs and revenue momentum are key factors.