In the wake of the regulatory crisis surrounding Paytm, non-bank lenders are actively exploring alternatives for loan disbursal, apprehensive about the uncertainties surrounding the fintech giant's lending services, according to sources familiar with the matter.

On January 31, Paytm's banking unit received a directive from the central bank to cease operations due to persistent non-compliance with regulations. Subsequently, Paytm announced a temporary halt to loan origination, citing operational challenges.

The potential withdrawal of lending partners from Paytm could deal a significant blow to the app, with loan distribution fees contributing close to a fifth of its revenues in the latest quarter, analysts noted.

While contracts between non-bank lenders and Paytm remain intact for now, sources reveal that lenders are actively considering alternatives amid regulatory concerns.

"We have been in discussions with the company regarding regulatory issues, and until these are resolved, we prefer to explore other avenues for loan disbursal," stated a senior executive from one of Paytm's lending partners, speaking on condition of anonymity.

Despite assurances from Paytm regarding the temporary halt in lending services, concerns persist among lending partners regarding the resumption timeline.

According to a Paytm spokesperson, the pause in lending activities is solely due to operational reasons, and the company's relationship with its lending partners remains unaffected.

Paytm currently collaborates with seven non-bank lending partners, including Aditya Birla Finance, Hero Fincorp, Piramal Capital, and others.

Paytm facilitated loans worth Rs 15,500 crore on behalf of its lending partners in the October-December quarter, indicating the significance of lending operations to its business model.

However, Paytm's shares have plummeted by 10 per cent to record lows following concerns raised by brokerage house Macquarie regarding a potential customer exodus. The company's stock has halved in value since the regulatory directive on January 31.

Despite the uncertainty surrounding Paytm's future, customers can still make payments through the app using the Unified Payments Interface (UPI) digital payments system. However, the crisis has led to a decline in merchant acceptance of Paytm, while competitors like PhonePe and Google Pay have witnessed increased demand for their services.

(With Reuters inputs)