Two of India's most prominent startup tech giants are in deep trouble

Paytm's bank has been locked out, edtech darling Byju's faces bankruptcy

Two of India's tech leaders, both of which have been widely hailed as exemplars of local entrepreneurialism, are in deep trouble.

Let's start with Paytm, a payment service that accounts for over 45 percent of transfers made using India's Unified Payments Interface. For hundreds of millions of Indian citizens, and tens of millions of Indian businesses, Paytm's app is what they use for everyday purchases.

But on January 31, India's Reserve Bank issued a statement [PDF] detailing the results of an ongoing audit into Paytm Payments Bank Ltd (PPBL), Paytm's banking arm. The review found "persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action."

That action was swift and severe: from February 29, PPBL has been prevented from accepting any incoming funds that would flow to Paytm wallets, or processing transactions other than those that allow users to spend their account balance.

Paytm users can still top up their accounts from other sources and make transactions with merchants – but the penalty is unprecedented and Paytm's corporate parent One 97 Communications has seen its share price sink almost thirty percent as a result.

Speculation about the reason for the penalty has centered on allegations of money laundering, and less-than-rigorous attempts to curtail it.

Paytm published a statement [PDF] on Sunday denying that theory, pointing to past efforts to curtail money laundering. But others have pointed to PPBL's long history of run-ins with regulators, and suggested that India's Reserve Bank has reached a "three strikes and you're out" decision.

On social media the biz advised customers "Your favourite #Paytm app and its services are fully operational, and will continue to work even after Feb 29th," with an accompanying video expressing support for the service from some prominent Indians.

CEO Vijay Shekhar Sharma has repeated that assurance, adding "For every challenge, there is a solution and we are sincerely committed to serve our nation in full compliance."

"India will keep winning global accolades in payment innovation and inclusion in financial services," he added, "with PaytmKaro as the biggest champion of it."

That language is notable, because India loves its successful tech startups – especially when they take on the world and/or beat Big Tech at its own game. Sharma's woes have therefore generated some sympathy.

The Reserve Bank is yet to show any, though – or any sign of changing its mind.

Byju's bankruptcy

The other troubled Indian tech leader is called Byju's and offers online tutoring services. Investors and lenders sank over a billion dollars into the biz, which spent billions on acquisitions and prominent sports sponsorships. Byju's backed the 2022 FIFA World Cup and its logos appeared on the shirts of the Indian men's cricket team.

Its market value soared past $20 billion, but profit appears to have been elusive. And in mid-2023, India's government ordered a probe into its finances. Amid fights over whether Byju's was being transparent about the state of its books, lenders tried to restructure loans that appeared in danger of not being paid.

Last Friday, the US outpost of Byju's filed for bankruptcy – a response to pressure from stateside lenders. Byju's also faces insolvency cases in India.

Things look grim: CEO Byju Raveendran reportedly told staff he has been "moving mountains" for months, just to make payroll. Staff were paid for January over the weekend of February 3 and 4, after being promised payments later in the week.

Raveendran reportedly tried to portray those slightly-less-late payments as a good thing.

Indian politicians, however, continue to champion startups as essential for growth of the nation's tech industries, and the current crop as proof the nation will succeed in its drive to become an even more significant player.

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