DailyBrief: RBI vs Paytm - Explained; and key takeaways from the interim budget

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Market Watch

• Indian benchmark indices ended the day flat with the Sensex down 106.81 points at 71,645.30, and the Nifty down 28.20 points at 21,697.50.
• Sectorally, Nifty Auto, Nifty Bank, Nifty FMCG and Nifty Power made marginal gains while Capital Goods, Metal and Realty made losses.

Why RBl nuked Paytm Payments Bank

Basically, Paytm Payments Bank's proximity to its promoter entity Paytm is at the heart of the matter. Other issues like regulatory compliance issues with Paytm Payments Bank's loan disbursals are also under the scanner.

However, Vijay Shekhar Sharma, founder of Paytm, remains optimistic despite the Reserve Bank of India's constraints on Paytm Payments Bank. “Now onwards, will only work with other banks & not Paytm Payments Bank. We are overwhelmed by the support we have received from large banks in the country,” Sharma said.

From February 29: No transactions will be allowed using any of Paytm Bank’s products including savings bank account, wallet, Fastags.

• Withdrawals will be permitted till the balance in these accounts lasts.
• It is no longer allowed to facilitate any payments including UPI so Paytm app users (with @paytm handle) won’t be able to make UPI transactions even if the UPI IDs are linked to a different bank account.
• Merchants will not be able to receive money unless Paytm changes their nodal bank accounts (to other pvt banks).

Why did this happen? Paytm Payments Bank’s proximity to its parent Paytm. Regulations require Payments banks to maintain distance from promoter group entities. All Paytm Payments Bank services can only be accessed through the Paytm app.

• Paytm's limited exposure to Chinese entities is also one of the matters of concern. It also reportedly “failed to meet the Rs 100-crore net worth criteria and also exceeded the Rs 1-lakh deposit limit allowed per account for payments banks at the time.”
• Paytm’s postpaid services are also under the scanner since payments banks are not allowed to lend, but it has disbursed ~36 million loans until December. There has also been a 6-fold increase in complaints against Paytm Payments Bank from 2019-2023.
• Former Executive Director of RBI, Deepali Pant Josh called it a “disaster that had been in the making since October 2023 ,” saying that “Paytm took no cognizance of all the warnings which were given to it several times. If you persist, then there has to be a thus far and no further state and that's exactly where they have landed”.

Clip du jour

This video of a priest performing a puja in the cellar under the Gyanvapi mosque

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Key takeaways from the Interim budget

Finance Minister Nirmala Sitharaman concluded her sixth budget presentation a few minutes short of an hour. Many have noted how the Finance Bill 2023 is the shortest in recent times.

• This interim budget is used to seek Parliament's approval for government expenditure in the initial four months of the new fiscal year. A complete budget will be presented after the elections.?

Key announcements: Finance Minister Nirmala Sitharaman highlighted the inclusive approach of the PM Modi-led NDA government, with a focus on the needs of the poor, women, youth, and farmers.

• In a major disappointment to the salaried class, there is no change in income tax slabs or tax rates.
• The government has also not announced any populist measures which would add fiscal burden.
• No new welfare schemes were also announced.
• Sitharaman announced that the average income of people increased by 50%.
• Inflation remains within the targeted band.
• There is a plan to upgrade 40,000 Railway bogies to Vande Bharat Standard.
• Defence outlay is set to be 3.4% of GDP.
• A committee will be established to review rapid population growth and demographic changes.
• Stock markets opened in green in anticipation of the Interim Budget and are trading flat post the budget presentation.

For stock market investors: The interim Budget 2024 increased the capital expenditure outlay by 11.1% to Rs 11.11 lakh crore, aiming to boost economic activities and job creation, which may benefit private capital expenditure and certain sectors like cement and steel.

• There is a focus on the electric vehicle (EV) ecosystem , with the budget providing support for manufacturing and charging infrastructure, likely to benefit related stocks like Olectra Greentech, JBM Auto, and Cotton Greaves.
• The budget announced the conversion of around 40,000 rail bogies to Vande Bharat coaches , potentially benefiting companies involved in the manufacturing of these trains and related stocks.
• An enhancement of the Lakhpati Didi scheme with financial injection into households is expected to positively impact the rural economy and related stocks, such as micro-financiers and self-help group-oriented businesses.
• Aiming for solarization of 1 crore households under the Suryodaya Yojana , the move is anticipated to benefit solar power companies through the promotion of rooftop solar installations.?

Key mentions: After PM Modi's visit to Lakshadweep triggered a diplomatic standoff with Maldives, Nirmala Sitharaman has announced tourism projects for islands, including Lakshadweep, emphasizing the tremendous opportunities in tourism.

• India-Middle East-Europe trade corridor which found a mention in the newly introduced during the G20 Summit was highlighted as a game-changer.
• Sitharaman noted the emergence of a new world order post-COVID and India's successful navigation of global challenges during its G20 Presidency.

The big picture: The Finance Ministry's pre-budget report suggested that India's GDP growth is projected to be close to 7% in 2024-25, with the economy expected to hit $5 trillion in the next few years, making it the third-largest in the world.

ICYMI

• As companies add robots to their assembly and manufacturing lines to replace human workers, ironically, a profession known as “robot wranglers” has emerged to manage and safeguard robots in work environments.
• Today, the US administration went on record to claim that the US Congress has approved the sale of Predator drones to India , contrary to earlier reports that this was put on hold over the Pannun assassination conspiracy.
• European farmers' protests have spread to Brussels, and they have now essentially blockaded the EU Parliament .
• Devotees and priests have begun prayers in the Gyanvapi mosque complex as security measures are heightened following a Varanasi court order.
• The quiet upscale Alistonia Estate in Greater Noida was hiding a secret methamphetamine lab until it was uncovered by the Delhi police.
• Ken Griffin has ceased over $500 million in contributions to Harvard, criticizing the university's departure from its educational mission and expressing frustration with its DEI policies.