Paytm Payments Bank’s digital wallet business is at risk of halting operations after February 29, pending approval from the Reserve Bank of India (RBI) to transfer its license to parent company One 97 Communications (PAYT.NS), according to two reliable sources.
RBI’s Order Puts Paytm’s Financial Services Under Scrutiny:
In a recent directive, the RBI has instructed the payments bank subsidiary of One 97 Communications to cease accepting fresh deposits in its accounts or popular wallets starting in March.
This move impacts Paytm’s extensive digital wallet user base, comprising 330 million accounts used for fund transfers, bill payments, and retail transactions.
During a call with analysts, Paytm expressed optimism about maintaining its digital wallet business by establishing new banking relationships.
However, transferring the license from Paytm Payments Bank back to Paytm may prove challenging, requiring approval from the RBI—a process that faces uncertainties and concerns, as stated by the sources.
Banks Exercise Caution; Clarity Sought from RBI:
Five Indian banks, cautious due to the RBI’s concerns, may hesitate to engage in business with Paytm, even if a license transfer occurs.
Approval from the RBI is crucial for any banking services partnership related to the digital wallet business, adding complexity to the situation.
In response to the RBI order, Paytm’s shares have plummeted 20% for the second consecutive day, resulting in a $2 billion loss in market value. The stock is currently at 487.2 rupees, near record lows from 2022, valuing the company at $3.7 billion.
Analysts Downgrade Paytm; Crisis Deepens:
Analysts have downgraded Paytm, with at least five assigning a sell rating after the RBI’s action.
Seven analysts have also slashed target prices, indicating a challenging road ahead for the company. JP Morgan highlights the substantial impact on Paytm’s core payments business, which accounts for 59% of its revenues.
Fastag Service Hit; Paytm Faces Market Share Loss:
Jefferies notes that Paytm’s digital highway toll payment service, FASTag, will be affected by the RBI order, preventing users from replenishing after February 29.
With a 17% market share in this segment, Paytm is expected to face challenges in retaining its position.
Last year, the RBI fined Paytm Payments Bank $650,000 for non-compliance, including violations of “know your customer” rules.
In 2022, the bank was prohibited from acquiring new customers and underwent a comprehensive IT system audit.
These actions followed concerns surrounding Paytm’s valuation, business model complexity, and slow path to profitability, leading to a lackluster stock market listing.
