Indian non-banking financial companies are considering alternatives to Paytm for loan distribution amidst the financial firm's ongoing regulatory issues, according to those familiar with the subject. Lending services have been temporarily halted at Paytm due to issues of persistent non-compliance with financial norms, causing a sense of unease among its lending partners.

Such a shift from Paytm by its lending partners could significantly impact the mobile app, which depends on loan distribution fees for nearly one-fifth of its revenue, according to market experts. Though contracts with Paytm have not yet been cancelled, these lending entities have no projection of when they could resume their operations with the Paytm platform.

A top representative from one of Paytm's loan partners stated their intent to avoid future dealings with the company and seek alternatives for loan issuance until the underlying regulatory concerns are fully resolved. Paytm clarified that it holds its relationships with lending partners in high regard and believes the loan hold is temporary and due to operational factors.

Existing non-bank affiliates, which include reputable financial bodies such as Aditya Birla Finance, Hero Fincorp, Piramal Capital, Poonawalla Fincorp, Shriram Finance, SMFG India Credit, and Tata Capital have yet to comment publicly. Paytm, officially known as One 97 Communications, had dispatched loans of ₹155 billion ($1.9 billion) on behalf of these partners in the last quarter, as per its investor presentations.

The company's shares plummeted by 10%, hitting a new record low, as hype over potential customer departure swirls. The transactional and reputational influence from the closure of Paytm Payments Bank is yet to be fully quantified. The bank's 330 million digital wallet holders will be unable to add to their deposits post-February but can withdraw their existing funds. Meanwhile, Paytm's digital payment services via India's foremost Unified Payments Interface (UPI) remain functional.