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Airtel is in talks with Paytm to sell Airtel Payments Bank business.
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The deal could involve an equity swap where Airtel would receive Paytm shares in exchange for the payments bank business.
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Airtel has also discussed making an additional investment in Paytm.
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The two companies have not yet reached a deal, and both maintain some reservations.
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The discussions have reached a stage where bankers are involved.
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Paytm has denied being involved in any such discussions.
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Part of Paytm's apprehension is the significant overlap in customers between Paytm Payments Bank and Airtel Payments Bank.
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Paytm's shares are down over 60% since its 2021 listing.
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All the consumer tech startups that have gone public in the past two years, including Paytm, have performed poorly in the public markets.
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Airtel's payments bank has nearly 130 million customers and is a profitable unit.