RBI has instructed Paytm Payments bank to halt new deposit and credit transactions from February 29 due to regulatory concerns and non-compliance issues. Following this directive, Vijay Shekhar Sharma, the founder of Paytm, reportedly met with the Finance Minister the day after discussing a plan with RBI to address these regulatory issues.
Despite Sharma’s efforts, reports suggest that the central bank has refused to offer any concessions to Paytm Payments bank, such as allowing the migration of accounts to other banks or extending the February 29 deadline.
The stock rose as much as 10 percent to its intraday high of ₹496.75, extending gains for the second straight session. It ended more than 3 percent higher in the previous session (February 6), recovering nearly 13 percent of its intraday gains following the news of Sharma’s meeting with the FM.
The central bank’s refusal presents a major setback for Paytm, requiring the migration of Payments Bank accounts to third-party banks well before the deadline to maintain smooth operations of the payments interface. This move calls for swift action by Paytm to ensure a seamless transition for its customers and maintain functionality.
However, in the 3 previous sessions before that (between February 1-5), the stock crashed more than 42 percent, hitting lower circuits in each of these sessions.
The stock is still 77 percent down from its IPO price of ₹2,150 and more than 50 percent away from its 52-week high of ₹998.30, hit on October 20, 2023. In February so far, the stock has lost nearly 36 percent after a 20 percent gain in January. Meanwhile, in the last 1 year, the stock has decreased by 19 percent.
Meanwhile, Paytm also found itself under scrutiny as rumors surfaced suggesting that the company, along with its related company and CEO/founder, were under investigation by government agencies for possible violations of foreign exchange regulations and money laundering.
In response, Paytm vehemently denied these allegations, labeling them as baseless speculations. The company clarified that reports indicating investigations into violation of foreign exchange rules by Paytm or its related entity, Paytm Payments Bank Limited (PPBL), had no factual basis. Moreover, Paytm has previously refuted claims of any investigation by the Enforcement Directorate regarding OCL (One97 Communications Limited), its partners, or its management.
While the RBI has placed severe restrictions on Paytm Payment banking operations, citing non-compliance with KYC guidelines and other issues; Paytm informed that the RBI limits will not affect user deposits in its Wallets, FASTags, NCMC accounts and savings accounts.
Paytm said users can continue to use existing balances and added that it is taking immediate steps to comply with RBI’s directions, including working with the regulator to address their concerns as quickly as possible.
“The company has been informed that this does not affect users’ deposits in their savings accounts, Wallets, FASTags and NCMC accounts, where they can continue to use the existing balances,” the company said last week.
Moreover, amid reports of Mukesh Ambani’s Jio Financial Services acquiring the Paytm Wallet, the company clarified that it was not in any negotiations in this regard.
After the whole debacle, several brokerages cut their target prices on Paytm shares last week. Among them, Jefferies set the lowest target at ₹500. Meanwhile, Macquarie, who previously suggested a target of ₹650 for the shares, warned of the significant repercussions of the RBI’s actions. The brokerage warned that these measures could seriously hamper Paytm’s ability to retain customers within its ecosystem.
Bernstein also lowered his target to ₹600 of ₹950 while maintaining a premium rating.
“While the regulatory action will undoubtedly have a lasting impact on investors’ assessment of business model risk and management’s ability to address regulatory risk, we expect the company to successfully implement the operational changes necessary to overcome the restrictions,” it said .
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Published: 07 Feb 2024, 10:57 IST