A subsidiary of fintech giant Paytm- Paytm Entertainment faces the risk of being classified as a Non-Banking Financial Company (NBFC) after it lent money to a joint venture business that exceeded the central bank’s limits. The online ticket booking services provider has approached the Reserve Bank of India, seeking exemption from being categorised as a finance company as it is not in the business of lending, said people with direct knowledge of the matter.

RBI rules say if a company derives 50 per cent of its total assets and income from financial assets, it needs to register with the central bank as an NBFC.

Last year, Paytm Entertainment had sanctioned a one-time loan to its JV Paytm First Games to a tune of ₹80 crore. The loan was an aid to help the venture survive Covid-19 downturn. Post this loan, financial assets in the balancesheet of Paytm Entertainment exceeded the 50 per cent cap specified under the RBI rules as on March 31, 2021.

If a firm is categorised as an NBFC, it must have to apply from a license from RBI to continue its operations. Finance companies have capital requirements. RBI’s nod is also mandatory in case of any restructuring that an NBFC undertakes. Also, they need to file periodic compliance reports with RBI every six months.

Paytm declined to comment on the matter. An email sent to the RBI remained unanswered.

“Paytm Entertainment wrote to RBI on May 26 saying that the transaction was a one-time thing, and the company doesn’t intend to make it a systemic practice going forward,” said a person with direct knowledge of the matter. “The Company also has no intention of being an NBFC and hence it requested RBI to exempt it from having to register as an NBFC.”