Paytm gains on RBI nod to First Loan Default Guarantee model, up third day in a row

FLDG helps banks and NBFCs cover potential losses, as well as gives them confidence that fintechs understand credit risk

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Shares of One97 Communications, the operator of Paytm, gained over 3 percent on June 9, a day after the Reserve Bank of India (RBI) approved the First Loss Default Guarantee (FLDG) programme.

The FLDG is a popular product that fintechs in the country use to form partnerships with banks and non-banking financial companies (NBFCs). It helps banks and NBFCs cover potential losses, as well as gives them confidence that fintechs understand credit risk. Under FLDG, fintechs help banks and NBFCs recoup losses that occur when customers default on payments.

At 2.45 pm, the stock was quoting at Rs 801.90 on the NSE, higher by 3.8 percent from the previous close. The stock has been on a three-day gaining streak and is up over 12 percent.

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Before the digital lending norms were introduced, fintechs and banks had developed an FLDG model on their own where the former provided a guarantee to compensate for up to a certain percentage of default in a loan portfolio.

Now, the RBI has approved the model and capped the amount at 5 percent of the total loan value.

On a high

Paytm is now at a nine-month high. From a technical perspective, if it fills another bearish gap of August 12, 2022 and reclaims its swing high of last August of Rs 844, then it could see a big rise, experts said.

In the quarter ended March 2023, Paytm parent significantly brought down its losses. The company’s consolidated net loss narrowed to Rs 168 crore from Rs 761 crore a year ago, and Rs 392 crore a quarter ago. Consolidated revenue from operations surged by nearly 52 percent YoY to Rs 2,335 crore.

BoFA upgraded its rating for One97 Communications to ‘buy’ while also raising its price target for the stock by nearly 10 percent to Rs 855. The broking firm cited expectations of a strong revenue momentum for the company as the reason behind the upgrade.

The brokerage said Paytm possesses significant potential for positive operational leverage and sits in a “sweet spot” due to limited competition. BoFA also highlighted factors such as the growth of digitalisation driving payments and the company’s robust cash balance.

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