Indian non-bank lenders are looking at options other than Paytm for for loan disbursal, worried about the regulatory crisis engulfing the firm that has led to a temporary halt of lending services, sources with direct knowledge of the matter said.

Paytm's banking unit on Jan. 31 was hit by a central bank order to wind down its business due to persistent non-compliance with rules and a day later Paytm said it would not be originating loans for "maybe a couple of weeks" to resolve operational challenges.

If Paytm's lending partners were to distance themselves from the company, that would be a further major blow to the app. Loan distribution fees contributed close to a fifth of Paytm's revenues in the latest quarter, analysts have said.

While non-bank lenders have not terminated their contracts with Paytm, sources said that they have no visibility as to when they might be able to resume lending through the Paytm app.

"We have been speaking to the company about regulatory issues and until those are resolved, we want to stay away and explore other options for loan disbursal," a senior executive at one of Paytm's lending partners said.

The executive was one of three sources at the non-bank lenders who said that options were being explored. They were not authorised to speak to media and declined to be identified.

A Paytm spokesperson said that while new lending from lending partners had been put on hold for a couple of weeks, the company "would like to stress upon the fact that it is solely due to operational reasons and our relationship with our lending partners remains intact."

Paytm has seven non-bank lending partners: Aditya Birla Finance, Hero Fincorp, Piramal Capital, Poonawalla Fincorp, Shriram Finance, SMFG India Credit and Tata Capital.

None of the non-bank lenders responded to Reuters requests for comment. Most also have partnerships with other digital payments firms.

Paytm, known formally as One 97 Communications, disbursed loans worth 155 billion rupees ($1.9 billion) on behalf of the seven lenders in the October-December quarter, according to a company presentation to investors.

"Lending was expected to become the key driver of earnings in the near future and hence accounted for the bulk of Paytm's (market) valuation," said Pranav Gundlapalle, senior research analyst at AllianceBernstein.

Paytm shares tumbled another 10% on Tuesday to fresh record lows after brokerage house Macquarie said the company faced a serious risk of customer exodus. The stock has halved in value since Jan. 31.

It remains to be seen just how extensive the financial and reputational impact of the winding down of Paytm Payments Bank will be on Paytm.

Owners of the 330 million digital wallets at the bank will not be able to add to their deposits after Feb. 29 but will be allowed to withdraw their money. While the deadline might be extended to allow for a smoother transition of some bank-related services, the central bank has said it will not review its decision to halt business at the bank.

Having its own payments bank allowed Paytm to process transactions at a lower cost than other digital payments firms. Paytm has said it is working on securing new banking partners.

Payments can, however, still be made on the Paytm app using India's popular Unified Payments Interface (UPI) digital payments system.

The crisis has, however, seen many merchants refuse to accept payments via Paytm while Walmart's PhonePe and Google Pay have seen demand surge for their services.

($1 = 83.0000 Indian rupees)

(Reporting by Jaspreet Kalra and Siddhi Nayak; Editing by Ira Dugal and Edwina Gibbs)