Paytm, India’s leading digital payments company, has seen its share price plummet to a record low on Monday, as investors lost confidence in the company following the Reserve Bank of India’s (RBI) decision to bar its payments bank from conducting certain operations.
RBI restricts Paytm Payments Bank
The RBI last week ordered Paytm Payments Bank Ltd (PPBL), a restricted bank that can take deposits but cannot lend, to not take any further deposits or conduct credit transactions or carry out top-ups on any customers accounts, prepaid instruments, wallets, cards for paying road tolls after February 29. The regulator also imposed a penalty of Rs 10 lakh on PPBL for violating the norms on maintaining minimum net worth and capital adequacy ratio.
The RBI’s action came after it found that PPBL had breached the limit of Rs 1 lakh per customer for deposits, and had also failed to report some transactions to the Financial Intelligence Unit (FIU). The RBI said that PPBL had not complied with its directions issued in 2018 and 2019, and had not taken corrective measures despite repeated reminders.
Paytm shares fall for 3rd day; hit lower circuit limit
Shares of One97 Communications Ltd, which owns Paytm brand, fell by another 10 per cent to hit its lower circuit limit, as investors continued to dump the stock following the RBI’s crackdown. The stock tanked 10 per cent to Rs 438.35 – its lowest trading permissible limit for the day – on the BSE. It plummeted 9.99 per cent to hit its lower circuit limit of Rs 438.50 on the NSE In three days, the stock has tumbled over 42 per cent, wiping out Rs 20,471.25 crore, from its market valuation.
Paytm, which had a blockbuster initial public offering (IPO) in November 2021, raising Rs 18,300 crore, has seen its share price erode by nearly 80 per cent from its issue price of Rs 2,150. The company, which was valued at over Rs 1.4 lakh crore at the time of its listing, is now worth less than Rs 30,000 crore.
Paytm faces impact on its business and profitability
The RBI’s decision has put Paytm in a tight spot, as it affects its core business of digital payments and financial services. Paytm Payments Bank Limited (PPBL) is an associate of One97 Communications Limited (OCL). One97 Communications holds 49 per cent of the paid-up share capital (directly and through its subsidiary) of PPBL. Vijay Shekhar Sharma, the founder and CEO of Paytm, has a 51 per cent stake in the bank.
PPBL, which was launched in 2017, claims to have over 64 million customers and processes over 1.2 billion transactions every month. It offers services such as savings accounts, current accounts, fixed deposits, debit cards, UPI, and FASTag. PPBL also acts as a business correspondent for other banks, and provides credit and insurance products through its partners.
Paytm management has said that PPBL is in discussion with RBI to comply with their direction for continuing the business. It has also assured its customers that their money is safe and secure, and that they can continue to use Paytm app and wallet for making payments. However, Paytm sees an impact of Rs 300-500 crore on its annual operational profit due to the RBI’s action.
Paytm faces competition and challenges in the digital payments space
Paytm, which pioneered the digital payments revolution in India, is facing stiff competition from other players in the space, such as PhonePe, Google Pay, Amazon Pay, and WhatsApp Pay. These rivals have been gaining market share and user base, by offering attractive cashbacks, discounts, and rewards to customers.
Paytm, on the other hand, has been focusing on expanding its portfolio of financial services, such as wealth management, lending, insurance, and stock broking. The company has also ventured into new segments, such as e-commerce, gaming, content, and education. However, these businesses are yet to generate significant revenues or profits for Paytm, and require heavy investments and marketing.
Paytm is also facing regulatory and legal challenges in India, such as the data localization norms, the merchant discount rate (MDR) waiver, the unified payments interface (UPI) cap, and the antitrust probe by the Competition Commission of India (CCI). These factors have added to the uncertainty and risk for Paytm’s future growth and profitability.