Paytm Shares Plunge 20% As RBI Slaps Major Restrictions On Payment Bank

The share price of Paytm‘s parent company plummeted by 20% on Thursday following the Reserve Bank of India’s (RBI) decision to impose significant operational restrictions on the company’s payment bank.

What Happened: The RBI’s restrictions, which come into effect on Feb. 29, include a ban on new deposits and credit transactions. This move follows an earlier directive from the RBI on March 11, which prohibited the bank from adding new customers.

Trading in the shares of One 97 Communications Ltd, the company behind Paytm, was suspended after experiencing a drop of ₹152.20 during the early trading hours.

Avinash Gorakshkar, Head of Research at Profitmart Securities told Live Mint, "Paytm share price is under selloff heat as the Reserve Bank of India (RBI) has imposed restrictions on Paytm Payment Bank. This is expected to impact the lending business of Paytm, which generates around 20 percent of the fintech company’s net revenue.”

The RBI’s decision was based on a Comprehensive System Audit report and subsequent reviews by external auditors, which highlighted continuous non-compliance issues and serious supervisory concerns within the bank, necessitating further regulatory action.

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Key restrictions include the prohibition of any new deposits or credit transactions in customer accounts, prepaid instruments, wallets, FASTags, and National Common Mobility Cards (NCMC) after Feb. 29. However, this restriction does not apply to interest, cashback, or refunds, which can be credited at any time.

Customers will still be able to withdraw or use their existing funds in accounts such as savings, current accounts, and prepaid instruments without limitations, up to their available balance. However, the bank will not be able to offer other banking services, including various fund transfer services, after the specified date.

Moreover, the RBI has instructed Paytm Payments Bank to close the Nodal Accounts of One97 Communications Ltd and Paytm Payments Services Ltd by Feb. 29. The RBI directs the bank to settle all pipeline transactions and nodal accounts by March 15, after which it will not permit any further transactions.

Why It Matters: The recent restrictions imposed by the RBI come as a major blow to Paytm, which had been forecasted for robust growth by UBS. Global brokerage firm UBS said it was optimistic about Paytm's robust top-line compound annual growth rate (CAGR) of 54% over FY21-24.

The fintech giant had also recently implemented AI-powered automation to enhance operational efficiency and streamline repetitive tasks and roles, leading to a reduction in its workforce in operations and marketing.

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