SUMMARY
On February 2, 2024, Paytm shares experienced a 20% decline, opening at a 52-week low of INR 487.20 on the BSE
The drop follows RBI directive to Paytm Payments Bank, instructing it to halt all deposits, credit transactions, or top-ups in customer accounts after February 29
In response to RBI’s move, brokerage firm Jefferies downgraded the payment aggregator to ‘underperform’ from a ‘buy’ rating
Shares of One97 Communications Limited, the parent entity of Paytm, further nosedived 20% in early trade on Friday (February 2), to slip below the 500 mark, two days after the Reserve Bank of India (RBI) barred the fintech giant’s lending business from any deposits or credit transactions, or top-ups in any of its customer accounts.
The stock opened at a 52-week low of INR 487.20 on the BSE.
On Thursday (February 1), Paytm shares had already plummeted 20% to reach the lower circuit at INR 608.8 on the BSE.
In response to RBI’s move, brokerage firm Jefferies downgraded the payment aggregator to ‘underperform’ from a ‘buy’ rating. The firm also slashed the price target (PT) for Paytm’s stock by over half, reducing it from INR 1,050 to INR 500, impacting the share price of the listed fintech decacorn.
As disclosed in filings, the recent RBI action is anticipated to result in an annual EBITDA cost of INR 300-500 Cr going forward.
Paytm’s banking arm assured that it is collaborating with the sector regulator to address concerns promptly. In an exchange filing on February 1, Paytm conveyed that its wholly-owned banking subsidiary is taking immediate steps to comply with RBI directives and is actively working with the regulator to address concerns.
Founder Vijay Shekhar Sharma clarified to exchanges that he has not taken any margin loans or pledged any shares, whether owned directly or indirectly. Paytm also emphasized that the RBI notification does not impact user deposits in savings accounts, wallets, FASTags, and NCMC (National Common Mobility Cards) accounts, allowing users to continue using existing balances.
The regulatory intervention comes after persistent non-compliance and continued material supervisory concerns related to Paytm Payments Bank.
However, RBI’s decision has faced criticism even from bankers and analysts, marking a rare instance of such disapproval.
Although, this isn’t the first encounter between Paytm and RBI. In October last year, the central bank imposed a penalty of INR 5.39 Cr on Paytm’s subsidiary for non-compliance with know your customer (KYC) norms.
The RBI highlighted six major issues, including failure to identify beneficial owners, inadequate monitoring of payout transactions, and delays in reporting cybersecurity incidents.
In March 2022, the RBI directed Paytm Payments Bank to stop onboarding new customers, a restriction that continues. While there was hope in September 2023 for the restrictions to be lifted in March 2024, the recent RBI action may pose a challenge to that expectation.
