India's Paytm stock loses $2 bln after RBI order

Shares in India’s Paytm plunged 20% for a second straight day after its banking arm was ordered to halt business and despite assurances from its CEO that the firm’s digital payments app would continue to function normally.

The rout has erased about $2 billion in market value for Paytm – a company that has a long history of being in hot water – as it faces its biggest business and reputational crisis to date.

The Reserve Bank of India (RBI) said the action was taken due to Paytm Payments Bank’s non-compliance with rules and supervisory concerns, which a source with knowledge of the matter said had stretched over years.

Paytm’s banking unit powers most features of India’s most popular digital payments app that competes with the likes of Walmart’s PhonePe and Google. The app is used by millions of users to transfer funds, pay bills and maintain a digital wallet for retail payments.

Come March 1, the RBI has said, the bank will be prohibited from further deposits, credit transactions or wallet uploads. No fund transfers will be allowed either, which means that unless Paytm finds a new banking partner or partners, it will not be able to offer most services on its app.

CEO Vijay Shekhar Sharma has said partnerships with banks would “not be difficult to execute”, and on Friday he sought to reassure app users again.
“Your favourite app is working, will keep working beyond 29 February as usual,” he said in a post on X.

“For every challenge, there is a solution and we are sincerely committed to serve our nation in full compliance,” Sharma added.

On Thursday, Bhavesh Gupta, president and chief operating officer of Paytm, said Paytm expects to get back to normalcy by March, “if not earlier”. He added that the company had been holding discussions with the RBI and those have been on the “positive side”.

Since the RBI’s order on Wednesday, Paytm shares have slid by their daily limit for two days in a row, losing 36% in value. They were at 487.2 rupees on Friday, near record lows marked in 2022, and valuing the company at $3.7 billion.

At least five analysts cut their ratings on the stock to sell after the RBI order and seven slashed their target prices to between 450-750 rupees, LSEG data shows.

JPMorgan said RBI’s action impairs Paytm’s “profit pools, network effects and credibility” and “materially impacts” its core payments business which accounts for 59% of its revenues.

Another casualty of the RBI order will be Paytm’s digital highway toll payment service, or FASTag which users will not able to replenish after Feb. 29, Jefferies said, adding that Paytm has a 17% share of that market.

The central bank has long sought to bring Paytm into line.

Last year, it fined Paytm Payments Bank $650,000 for non-compliance, including on “know your customer” rules. In 2022, it barred the bank from taking on new customers and ordered a comprehensive audit of its IT systems.

That move came months after Paytm saw a dramatically underwhelming stock market listing amid concerns about the company’s valuation, its complex business model and slow road to profitability.