Regulatory Storm Hits PayTM: Shares Plunge 20% Amid RBI Restrictions

PayTM, India's renowned digital payments platform, faced a severe setback today as its shares plummeted by 20% in early trade. The unprecedented crash was triggered by the Reserve Bank of India's (RBI) stringent actions, effectively putting an end to PayTM's payments bank business. The central bank has imposed major restrictions on the company's lending activities, including a prohibition on accepting fresh deposits and conducting credit transactions after February 29.

On Wednesday, the RBI issued an order instructing Paytm Payments Bank to halt all banking services within a month. This includes accepting deposits and processing payments.

What All Services Will Be Impacted After RBI's Restrictions?

The central bank has frozen basic transaction services through Paytm's platforms, such as Unified Payments Interface (UPI), IMPS, Aadhaar-enabled payments, and more, effective February 29. The move reportedly comes in response to persistent non-compliances and supervisory concerns revealed in an external audit validation report.

“No further deposits or credit transactions or top-ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024, other than any interest, cashbacks, or refunds which may be credited anytime," the Reserve Bank of India (RBI) said in a statement.

“No other banking services like fund transfers (irrespective of name and nature of services like AEPS, IMPS, etc.), BBPOU and UPI facility should be provided by the bank after February 29, 2024," the statement added.

Unprecedented Impact on Users and Merchants

The disciplinary measures taken by the RBI are considered unprecedented in the financial services industry. These actions will not only impact Paytm's vast user base but also disrupt the wider merchant community relying on the platform for payment processing, wage disbursals, and other quasi-banking functions. Notably, Paytm's diverse product offerings, including travel and movie tickets, will continue unaffected.

Paytm's Immediate Response

Paytm responded promptly, informing exchanges that it is working with the regulator to address concerns and comply with RBI directions. The company acknowledges the potential worst-case impact on its annual EBITDA to be in the range of Rs 300-500 crore. However, Paytm expressed its commitment to improving profitability despite the challenges.

“taking immediate steps to comply with RBI directions, including working with the regulator to address their concerns as quickly as possible….However, the company expects to continue on its trajectory to improve its profitability," Paytm said.

Founder's Position and Stakes

In addition to the regulatory challenges, Paytm clarified that its founder, Vijay Shekhar Sharma, has not taken any margin loans or pledged any shares directly or indirectly owned by him. Vijay Shekhar Sharma currently holds the majority stake in Paytm, acquiring a 10 percent stake in August 2023, bringing his total ownership to 19.42 percent.

Restrictions on Banking Services

Under Section 35A of the Banking Regulation Act, 1949, Paytm Payments Bank is prohibited from accepting deposits or top-ups in customer accounts, wallets, or FASTags after February 29. The RBI emphasized that no further deposits, credit transactions, or top-ups would be allowed after this date, except for interest, cashbacks, or refunds.

Additionally, the RBI directed the termination of Nodal Accounts of One97 Communications and Paytm Payments Services Ltd., stating it should be completed not later than February 29, 2024.

Customer Impact and Withdrawal Guidelines

While the imposed restrictions limit further transactions, the RBI assured that customers could withdraw or utilize balances without any restrictions up to their available balance. The regulator outlined a timeline for the completion of settlement transactions and nodal accounts, emphasizing that no further transactions would be permitted after March 15, 2024.

PayTM's Stock Market Journey

Paytm made its stock market debut over two years ago with one of India's largest initial public offerings (IPOs). Despite an initial surge, the stock has seen a significant decline, closing at Rs 761 on January 31. One 97, Paytm's parent company, reported total revenue of Rs 2,850 crore and a net loss of Rs 222 crore in the December quarter, with a market capitalization exceeding Rs 48,000 crore.

Paytm faces a challenging period ahead as it navigates the regulatory hurdles imposed by the RBI. The impact on users, merchants, and the company's financial health remains uncertain, but Paytm remains resilient in its commitment to compliance and profitability.

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