All of Paytm’s primary products, such as wallets, FASTags, UPI, and deposit accounts for millions of retailers, are housed at Paytm The Reserve Bank of India imposed significant restrictions on Paytm’s lending business, including a ban on accepting new deposits and executing credit transactions after February 29. As a result, the company’s shares fell by 20%.
The opening price of Paytm shares on the NSE was Rs 609 per share, which was a 20 percent decrease from the closing price of the previous session. The fintech company’s shares settled at Rs 761 a share on January 31.
The stock has loss about 1% so far this year, compared to a 27.45% loss in 2023. Mutual funds owned about 5% of Company as of the December 2023 quarter, up from 2.79 percent the previous quarter.
The Reserve Bank of India said that it was forced to take such drastic measures because a validation report from the external auditors showed “persistent non-compliances and continued material supervisory concerns in the (Paytm Payments) Bank.”
Company notified exchanges that it is “taking immediate steps to comply with RBI directions, including working with the regulator to address their concerns as quickly as possible” in response to the stringent action.
In response to the strict action, Company informed exchanges that it is “taking immediate steps to comply with RBI directions, including working with the regulator to address their concerns as quickly as possible.”
The company informed exchanges that, depending on the resolution’s nature, the worst-case impact on its annual EBITDA is projected to be between Rs 300 and 500 crore.Paytm stated, “To improve profitability, the company intends to continue on its current course.””
Furthermore, Paytm’s founder, Vijay Shekhar Sharma, has not taken out any margin loans or pledged any shares that he owns directly or indirectly, according to information provided to exchanges by the company. Currently, Paytm’s largest shareholder and Significant Beneficial Owner is Vijay Shekhar Sharma. Vijay Shekhar Sharma’s holding increased to 19.42 percent in August 2023 when he purchased a ten percent stake from AntFin through his fully owned overseas company Resilient Asset Management BV.
The Reserve Bank of India has issued an order prohibiting new deposits or top-ups to Paytm Payments Bank accounts. However, current users are still able to access their balances. As a result, all account holders will be compelled to close their accounts and liquidate their balances. These merchants will be forced to leave Paytm immediately and pursue other UPI players, which is difficult because merchant accounts and know-your-customer procedures are more stringent. By the end of February, these limitations will be in place. The Investors are in Panic.
The development occurred shortly after the Reserve Bank of India imposed significant limitations on the lending operations of the company, including a ban on taking on new deposits and credit transactions beyond February 29.
Paytm Payments Bank powers Paytm’s profitable businesses, including FASTags, wallet, and prepaid products like vouchers.The business must now move everything to a bank, which is an unfeasible abrupt change.
PPB is a significant contributor to the company’s growth and future prospects. It is owned by One97 Communications (49%) and its founder, Vijay Shekhar Sharma (51%). One97 Communications is the listed entity. All of Paytm’s primary products, such as wallets, UPI, and deposit accounts, are housed at PPB. PPB holds all of Paytm’s more than 150 million UPI handles and 330 million wallet accounts.
Brokerage firm Jefferies cut its price target for the stock by more than half to Rs 500 and downgraded Paytm from a ‘buy’ call to ‘underperform’.
This renders even the current accounts void. This will have significant ramifications, so we’ll have to wait and see how the company responds before making any further announcements,” a fintech consultant who wished to remain anonymous says.
“The RBI statement stated, “After February 29, 2024, no further deposits, credit transactions, or top-ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc., other than any interest, cashbacks, or refunds which may be credited anytime.” According to the RBI note, additional restrictions included the requirement that banks offer UPI facilities, BBPOUs, and fund transfers (regardless of the name or type of service, such as AEPS, IMPS, etc.) after February 29, 2024.
With the RBI action, Jefferies expects significant reputational risks to impact Paytm. As a result, the new target price for the Paytm stock indicates a potential 34 percent downside.
