Small Cap NBFC Stock Tanks 20% After High Court Order

Shares of Paisalo Digital crashed sharply on Tuesday afternoon, going down 20% to hit the lower circuit.

What Happened: The massive slump today comes as the Delhi High Court requested responses from both the RBI and Sebi regarding a petition requesting an independent investigation into the purported unfair lending practices of Paisalo Digital Ltd.

Additionally, the court has asked Paisalo Digital to provide its reply within four weeks. The case is scheduled for a hearing on August 8. The company in a regulatory filing clarified that there have been no directions given to any regulators to probe the company.

The company also detailed the incident in the filing stating that Sat Priya Mehamia Memorial Educational Trust, Rohtak, defaulted on a loan of ₹12 Crores borrowed on March 24, 2018. Despite legal action and a court order to maintain the status quo regarding the mortgaged properties, the defaulter has only made a partial payment of ₹25 lakh and is involved in the unauthorized sale of the mortgaged land.

This non-compliance led to the classification of the loan as a loss asset in September 2019, with a provision of 100% in the company’s books of accounts. Legal measures, including filing an FIR, have been initiated against the borrower and its office bearers to address the situation and safeguard the lender’s interests, the company added.

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The petitioner has alleged that Paisalo Digital is charging exorbitant interest rates, specifically a 125% interest rate per annum on loans. According to the petitioner, the outstanding amount of ₹15.9 crore in May 2019 escalated to ₹23 crore in June 2019 due to these high interest rates.

The shares of the company tanked as soon as the order made headlines on Tuesday.

Price Action: Paisalo Digital’s shares were down 18.01% at ₹143.65 on Tuesday afternoon.

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Image generated using DALL-E.

Editor’s note- The story has been updated to include the company’s statement.