Paytm (PAYT.NS), an Indian digital payments firm, lost a fifth of its market value on Thursday after the central bank ordered its payment bank subsidiary to halt operations, raising concerns about the company’s profitability and reputation.
Paytm’s stock dropped to a six-week low of 609 rupees, wiping out approximately $1.2 billion in value from the company, also known as One 97 Communications. The stock was down 20% and near the bottom of its exchange-imposed daily trading band.
The Reserve Bank of India (RBI) ordered Paytm Payments Bank on Wednesday to stop accepting new deposits in its accounts or popular digital wallets in March, raising concerns about the company’s main payments business.
According to a person familiar with the situation, this could be the first step toward canceling the bank’s license. Paytm and the RBI did not immediately respond to inquiries for comment.
The RBI’s action raises concerns that Paytm’s lending partners will reconsider their relationships with the company, which owns 49% of the payments bank, according to analysts. It could stymie Paytm’s efforts to achieve net profitability, which skyrocketed after India banned high-denomination notes in 2016.
Despite rising 20% last year and another 20% this month prior to the central bank’s action, the stock is still trading at a fraction of its 2021 listing price.
Paytm stated that it would take immediate action to comply with the RBI’s directives, and that it anticipates a worst-case impact of 3 billion to 5 billion rupees ($36 million-$60 million) on its annual earnings before interest, tax, depreciation, and amortization (EBITDA).
In 2022, the RBI directed the bank to stop adding customers. A subsequent audit revealed “persistent non-compliances and continued material supervisory concerns in the bank,” the central bank stated on Wednesday, without providing further details.
PAYTM ‘RESTORE CREDIBILITY’
Following the RBI move, Jefferies downgraded Paytm’s stock to “underperform” from “buy”, lowering its target price to 500 rupees from 1,050 rupees and warning that regulatory and reputational issues could impact profitability.
The brokerage reduced its EBITDA estimates for Paytm, excluding the employee stock ownership plan, by 46% in 2025 and 44% in 2026, forecasting a 7% to 10% drop in payments revenues, a 17% to 24% drop in lending revenues, and compression in payments margins.
“Paytm’s business impact will largely come from reputational concerns arising from governance/compliance and hence, the path to resolution will be from stronger compliance with regulations and revoking of RBI measures,” Jefferies said in a statement.
The RBI will also terminate Paytm and Paytm Payments Services’ nodal accounts, which are used to facilitate transactions, by February 29. Paytm Payments Services is a fully owned subsidiary of Paytm.
“While we don’t believe that the order is an end of the road for Paytm, it materially impacts near term growth, profitability, forces another pivot and necessitates it to restore credibility of durability of the business,” an analyst at JPMorgan wrote in a note.
JPMorgan downgraded Paytm’s rating to “underweight” from “neutral” and lowered its target price to 600 rupees from 900.
One 97 is one of India’s largest payment firms, with SoftBank (9434.T) and Ant Financial as early investors. Over the last year, SoftBank has reduced its Paytm stake, while Warren Buffett’s Berkshire Hathaway (BRKa.N) and China’s Alibaba Group (9988.HK) have exited the company.
According to Paytm Payments Bank’s annual report for 2022-23, CEO Vijay Shekhar Sharma owns 51% of the bank that Paytm does not. The bank obtained its license in 2015.