Paytm shares crash 20% to lower circuit as RBI effectively ends payments bank biz

Shares of Paytm crashed 20 percent in early trade on February 1 as the Reserve Bank of India slapped major restrictions on the company’s lending business which also includes a prohibition on accepting fresh deposits and doing credit transactions after February 29.

Paytm stock opened at lower circuit, at Rs 609 apiece, down 20 percent on the NSE compared to the previous session’s closing price. On January 31, shares of the fintech player settled at Rs 761 per share.

So far this year the stock is down around 1 percent while in 2023, it lost 27.45 percent. As of December 2023 quarter, mutual funds hold around 5 percent stake in Paytm compared to 2.79 percent stake a quarter ago.

The Reserve Bank of India said a validation report of the external auditors revealed “persistent non-compliances and continued material supervisory concerns in the (Paytm Payments) Bank” thus forcing it to take such drastic action.

Also Read | Vijay Shekhar Sharma has no margin loans, pledged shares against ownership: Patym

Following the strict action, Paytm 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 nature of the resolution, it estimates the worst-case impact at Rs 300-500 crore on its annual EBITDA. “However, the company expects to continue on its trajectory to improve its profitability,” Paytm said.

Also Read | RBI imposes major business restrictions on Paytm Payments Bank

Additionally, Paytm has informed exchanges that founder Vijay Shekhar Sharma has not taken any margin loans, or otherwise pledged any shares that are directly or indirectly owned by him. At present, Vijay Shekhar Sharma is Paytm’s largest shareholder and Significant Beneficial Owner. In August 2023, Vijay Shekhar Sharma acquired a 10 percent stake from AntFin through his 100 percent-owned overseas entity Resilient Asset Management BV, thereby increasing his holding to 19.42 percent.

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Brokerage firm Jefferies has downgraded Paytm to ‘underperform’ from a ‘buy’ call while slashing the price target for the stock by more than half to Rs 500. The development comes soon after the Reserve Bank of India slapped major restrictions on the company’s lending business which also includes a prohibition on accepting fresh deposits and doing credit transactions after February 29.

Anticipating major reputational risks to weigh in on Paytm following the RBI action, Jefferies’ new target price reflects a downside potential of over 34 percent for the Paytm stock.

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