NEW DELHI: Shares of One 97 Communications, the parent company of Paytm, crashed on Thursday morning, a day after the Reserve Bank of India (RBI) cracked down on Paytm Payments Bank (PPBL) and its banking activities.
The shares opened the day at the lower circuit of 20% at Rs 609 apiece, a net change of -Rs 152.20. The stock, which debuted on the exchanges in November 2021, is often called one of the biggest wealth guzzlers of recent times given its initial public offering (IPO) issue price was kept at Rs 2,150 apiece.
In a big setback for the fintech firm which had ambitions to become a full-fledged bank, RBI on Wednesday barred its Payments Bank from taking new or top-up deposits in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024.
The RBI said a validation report of the external auditors revealed persistent non-compliances and continued material supervisory concerns in the (Paytm Payments) Bank thus forcing it to take such drastic action.
Paytm expects a "worst case impact" of Rs 300 crore to Rs 500 crore on its annual Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) going forward.
In an exchange filing, One97 Communications (OCL) said that despite this hit, it will continue on its trajectory to improve its profitability. Paytm reported an EBITDA of Rs 219 crore in the December quarter, while its net loss had narrowed to Rs 221.8 crore from Rs 392.1 crore last year.
Analysts believe this is a major blow to the company. Global brokerage firm Bernstein said the latest directive marks the effective end of operations for Paytm Payments Bank. It added that this development adds to the existing regulatory challenges that have cast a heavy overhang on Paytm's business.
Jefferies said that Paytm could see a collateral impact on the lending business, which accounts for 20% of revenues if Paytm's lending partners limit business due to operational or governance risks. According to Jefferies, this can be a key risk to earnings/ valuations and said it would await details from the management.
Global Financial Services Macquarie said that the implications for revenue and profitability in the medium to long term could be substantial and warrant close monitoring.
"We have seen RBI take 15 months time to revoke its ban on digital business activities of the largest private sector bank. However, in this case since the first ban (in March 2022) for onboarding new customers (22 months have lapsed), RBI has conducted a comprehensive IT audit and continued to identify non-compliance, which in our view indicates that these lapses are quite material."
"Accordingly, we do not see any near-term solution to these problems and this effectively means, in our view, that RBI is indirectly revoking the PPI (pre-paid instrument) licence of Paytm…The bigger issue is Paytm has not been on the good books of the regulator and going forward, their lending partners also could possibly re-look at the relationships in our view," it added.
One97 said that PPBL is taking immediate steps to comply with RBI directions, including working with the regulator to address their concerns as quickly as possible. The Company has been informed that this does not impact user deposits in their savings accounts, Wallets, FASTags, and NCMC accounts, where they can continue to use the existing balances,” the filing noted.
“OCL, as a payments company, works with various banks (not just Paytm Payments Bank), on various payments products. OCL started to work with other banks since starting of the embargo. We now will accelerate the plans and completely move to other bank partners. Going forward, OCL will be working only with other banks, and not with Paytm Payments Bank Limited. The next phase of OCL’s journey is to continue to expand its payments and financial services business, only in partnerships with other banks,” it added.
