Paytm Share Price Crash 20% After RBI Ban
Paytm share price : Paytm, India’s largest digital payments platform, faced a major setback on Tuesday as the Reserve Bank of India (RBI) imposed strict restrictions on its payments bank operations. The RBI directed Paytm Payments Bank Limited (PPBL) to stop accepting new credit and deposit operations, top-ups, fund transfers, and other such banking operations by February-end. The regulator also asked PPBL to submit a compliance report by March 15, 2024.
The RBI’s action came after it found that PPBL had violated the norms on maintaining minimum net worth, capital adequacy ratio, and leverage ratio. The RBI also said that PPBL had failed to comply with the directions on governance, risk management, and internal controls.
The news sent Paytm’s shares tumbling 20% to hit the lower circuit at Rs 608.80 on BSE, wiping out nearly Rs 20,000 crore of its market value. The stock has fallen more than 50% since its blockbuster IPO in November 2024, when it debuted at Rs 1,955 per share.
What does this mean for Paytm’s business?
The RBI’s action has a direct impact on Paytm’s wallet business and the profitability of its merchant payments business, which together account for about 40% of its revenues. According to Jefferies, a global broking firm, the RBI’s action can impact Paytm’s EBITDA (earnings before interest, taxes, depreciation, and amortization) by 20-30%.
Paytm’s wallet business allows users to store money in a digital form and use it for various online and offline transactions. Paytm has over 350 million wallet users and processes over 1.4 billion transactions per month. The wallet business also enables Paytm to cross-sell other products and services, such as lending, insurance, wealth management, and e-commerce.
Paytm’s merchant payments business allows merchants to accept payments from customers using Paytm’s QR codes, POS devices, and online payment gateways. Paytm has over 21 million merchant partners across India and earns fees from them for facilitating transactions. Paytm also offers value-added services to merchants, such as credit, insurance, loyalty programs, and analytics.
The RBI’s action will prevent Paytm from adding new customers and merchants to its wallet and payments bank platforms, which will hamper its growth and market share. It will also affect Paytm’s ability to retain existing customers and merchants, as they may switch to other alternatives, such as UPI, cards, or other wallets. Moreover, it will reduce Paytm’s revenue and margin from these businesses, as it will have to bear higher costs of compliance and customer service.
What is the outlook for Paytm?
Paytm’s management has tried to downplay the impact of the RBI’s action, saying that it is a temporary issue and that it will resolve it soon. Paytm’s founder and CEO, Vijay Shekhar Sharma, has also assured that he has not taken any margin loans or pledged any shares that he owns.
However, analysts and investors are not convinced, as they see the RBI’s action as a serious blow to Paytm’s reputation and credibility. They also fear that Paytm may face more regulatory hurdles and scrutiny in the future, as it operates in a highly regulated and competitive sector.
Paytm’s valuation, which was already seen as stretched by many, has also come under pressure, as its growth prospects and profitability have been clouded. Several brokerages have downgraded Paytm’s stock and slashed their target prices, citing the regulatory risks and the uncertainty over the resolution. The lowest target price for Paytm is Rs 500, implying a further downside of 18% from the current level.
Paytm, which aims to become a super app for all financial and lifestyle needs of Indians, will have to work hard to regain the trust of the regulators, customers, merchants, and investors. It will also have to focus on improving its governance, compliance, and risk management practices, as well as diversifying its revenue streams and enhancing its profitability. Paytm’s journey from a unicorn to a decacorn has been remarkable, but it will need to overcome this major setback to sustain its leadership and growth in the fintech space.