Indian fintech Paytm* went on a lending spree during the final quarter of 2022-23: distributing about 2X the number of loans than a year ago. This growth in the fledgling business is at the heart of the much-needed respite this financial year brought to the company.

In its March-quarter earnings release on 6 May, the fintech powerhouse marked the period as a “landmark year”—especially because it achieved operating profitability operating profitability Operating Profitability A financial metric that measures a company's ability to generate profit from its primary business activities before deducting interest, taxes and non-operating expenses .

It is a performance that got even one of Paytm’s most vociferous sceptics to take note. Take, for instance, Macquarie Research.

The brokerage firm, in January 2022, slashed Paytm’s revenue projections due to the merchant-loan-distribution business’ limited potential to scale. In February 2023, it said it was “positively surprised” by the distribution of financial-service revenue. And just this month, it concluded that Paytm’s loan-distribution business is a key driver of the fintech’s operational profitability.

In the quarter ended March 2023, Paytm saw a 250% jump in the total loan amount from a year ago. It distributed nearly 12 million loans worth over Rs 12,550 crore ($1.5 billion).

This growth pushed the fintech’s revenue up by 61% to Rs 7,990 crore (~$966 million) in the year ended March 2023.

Much-needed respite

After hitting an all-time low in November 2022, the share price of Paytm’s parent company One97 Communications Ltd has jumped over 30% since the start of 2023

In 2019, Paytm started offering a one-month buy-now-pay-later (BNPL) loan product, called Paytm Postpaid. Since then, it has built a cohort of users with up to four-year credit history. Now, it is using this customer base to sell personal loans to users and merchant loans to 7.1 million merchants who accept payments through Paytm’s payment devices.

At the moment, there is no dearth of demand for credit. But after the Reserve Bank of India—India’s banking regulator— imposed imposed Times of India Impact of new securitization guidelines by RBI on the business ecosystem Read more  strict rules on default guarantees, lending practices in the country have changed.

The regulator banned lenders from sharing credit risk with loan-service providers, who distributed loans. This clarified the roles of regulated and non-regulated entities, giving more clarity to regulated entities such as non-banking financial companies (NBFCs) when entering into partnerships. However, it also ended the First Loss Default Guarantee  (FLDG) (FLDG) FLDG An arrangement where a third party agrees to cover the initial or 'first loss' incurred by the lender if the borrower defaults on their loan obligations.