Shares of , parent of fintech Paytm, tumbled as much as 8% in early trade on Monday, 27 April, after the Reserve Bank of India (RBI) cancelled the license of Paytm Payments Bank Ltd (PPBL), more than two years after restricting its core business activities.
Paytm share price hit the day’s low of ₹1055.25 on the BSE, erasing nearly ₹6,000 crore from investor wealth as its market capitalisation tumbled close to ₹67,500 crore, as against Friday’s close of ₹73,427 crore.
Why did RBI cancel Paytm Payments Bank’s licence?
, effective from the close of business hours on Friday, citing violations of rules. The central bank added that Paytm Payments Bank has enough liquidity to repay its entire deposit liability upon winding up.
The RBI said the affairs of the bank were conducted in a manner detrimental to its own interests as well as its depositors.
“The general character of the management of the bank is prejudicial to the interest of depositors as also the public interest… no useful purpose or public interest would be served by allowing the bank to continue…,” the RBI said in a statement.
In March, 2022, the RBI had asked the bank to stop adding new customers. Two years later, the banking regulator imposed additional restrictions on the bank which disallowed any further deposits, credits or top-ups in existing customer accounts, prepaid instruments, wallets, etc.
How did Paytm respond to the RBI action?
In response to the RBI’s action, Paytm assured its shareholders and investors that the . The company also approved the winding-up of PPBL over the weekend.
“The Company wishes to assure its shareholders and investors that the winding-up of PPBL and the consequential cessation of the associate relationship are not expected to have any material impact on the business, operations, or financial condition of the Company. The Company continues to operate its businesses independently and in accordance with applicable laws and regulations,” it said in an exchange filing.
Upon the winding-up order becoming effective, PPBL shall cease to be an associate company of the company.
Paytm share: Should you buy, sell or hold?
Despite the RBI’s action, Bernstein has reaffirmed its confidence in Paytm, stating the recent development around Paytm Payments Bank Limited will have no impact on Paytm’s business. The firm has maintained an ‘Outperform’ rating with a price target of ₹1,500, according to a PTI report.
In its latest note, Bernstein said the regulator’s decision to cancel the payments bank license is an incremental development, stating that Paytm had already created a clear separation between the payments bank and the parent company, especially after the regulatory action in early 2024.
There is unlikely to be any impact on the company’s (Paytm’s) numbers as the operations of PPBL have been suspended for more than a year, PTI report quoted Bernstein as saying.
Harshal Dasani, Business Head at INVasset PMS, said that the Paytm stock price crash reflects the market’s tendency to price in regulatory uncertainty much faster than management reassurance.
Therefore, in the near term, the pressure on Paytm stock is more sentiment-led than earnings-led, he added.
“Paytm’s core payments, merchant acquisition and distribution businesses remain the key variables to watch, and the market will want proof that customer activity and merchant traction stay unaffected. Until that confidence rebuilds, the stock could remain volatile. The sharp reaction is therefore less about immediate operational disruption and more about a higher risk premium being assigned to the business after a fresh regulatory setback,” Dasani opined.
(With inputs from agencies)
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