The Reserve Bank of India (RBI) placed limitations on Paytm’s payment bank on Wednesday in a forceful statement as a result of non-compliance. This is anticipated to affect Paytm’s lending division, which accounted for about 20% of the fintech company’s net revenue. As a result, some market observers anticipate some selling pressure in Paytm shares during the early morning session on the date of the Budget 2024. This is because the Indian stock market is anticipated to react to this new development.
Expecting weakness in Paytm shares during the opening bell today, Avinash Gorakshkar, Head of Research at Profitmart Securities said, “The RBI has imposed restrictions on the Paytm’s payment bank due to non-compliance. This RBI restriction is going to impact the lending business of Paytm. As Paytm generates around one-fifth of its revenue from the lending business, the market is expected to discount the Paytm share price after this development.”
“The payment bank houses all 330 mn+ wallet accounts. Given the fact that the current MTU (monthly transacting users) for Paytm is 100 mn and the earlier ban was for onboarding new customers, Paytm could continue leveraging PBPLs customer base for selling payments and financial products. Existing customers are prohibited from carrying out basic banking operations like credit, deposits, fund transfers, UPI transactions, FASTag toll payments (where Paytm has ~17% market share and ~60mn users), bill payments, and use wallets. Given the severe restrictions imposed on PBPL, we believe it significantly hampers Paytm’s ability to retain customers in its ecosystem, and accordingly restricts it from selling payment products and loan products. We think revenue and profitability implications in the medium to long term could be significant and remain a key item to monitor,” Macquarie report said.
Basic banking operations such as credit, deposits, fund transfers, UPI transactions, FASTag toll payments (Paytm has a 17 percent market share and 6 crore users), bill payments, and wallet usage are not allowed for current customers.
It took the RBI 15 months to lift the prohibition on the largest private sector bank’s digital commercial operations
According to Macquarie, it took the RBI 15 months to lift the prohibition on the largest private sector bank’s digital commercial operations. In Paytm’s case, however, the RBI has carried out a thorough IT assessment and has continued to find non-compliance since the initial prohibition (in March 2022) for onboarding new consumers (22 months have passed), which in its opinion suggests that the lapses are rather serious.
Paytm Shares
As per the technical analysts, Paytm share price has crucial support placed at ₹700 and ₹590 apiece levels whereas Paytm shares are facing a hurdle at ₹810 and ₹890 apiece levels.
PPBL is barred from accepting deposits or top-ups in any customer account, wallets or FASTags after February 29 under section 35A of the Banking Regulation Act, 1949.
By: Gursharan Kaur