Paytm Shares Plunge 20% on RBI Restrictions: Analysts from Jefferies, Macquarie, and Bernstein Weigh In

Paytm Assures Users: RBI Restrictions Won’t Affect Savings, Wallets, FASTags, and NCMC Accounts

Paytm’s shares faced a 20% lower circuit limit after the Reserve Bank of India (RBI) imposed restrictions. Several brokerages, including Jefferies, downgraded the stock to ‘Underperform,’ setting a target of Rs 500 per share. Macquarie, while maintaining a ‘Neutral’ stance, reduced its target price to Rs 650 per share.

The market responded to concerns about the potential impact of the RBI measures on Paytm’s earnings and valuations, leading to a significant drop in share prices.

Paytm shares plummeted by 20% to Rs 608.80 on the BSE following the Reserve Bank of India’s (RBI) directive to Paytm Payments Bank Ltd. The RBI instructed the bank to halt new credit and deposit operations, top-ups, fund transfers, and other banking activities from February 29. Macquarie, a foreign brokerage, highlighted the severe implications of this move, stating that it could significantly impede Paytm’s ability to retain customers within its ecosystem.

Bernstein stated that the RBI notification effectively signals the cessation of operations for Paytm Payment Bank.

The brokerage firm views this as a definite negative development, further contributing to the substantial regulatory challenges that the business is currently facing.

In a recent update, Paytm reassured users that the RBI’s move would not affect deposits in savings accounts, Wallets, FASTags, and NCMC accounts. Users can continue using existing balances in these accounts. Paytm clarified that it will collaborate with other banks, excluding Paytm Payments Bank Limited.

The company also affirmed that its offline merchant payment network services, including Paytm QR, Paytm Soundbox, and Paytm Card Machine, will operate as usual. The platform will continue onboarding new offline merchants without disruption.

We anticipate significant revenue and profitability implications in the medium to long term and consider it a crucial aspect to monitor.

Macquarie highlighted that the RBI’s decision to lift the ban on the largest private sector lender’s digital business activities took 15 months. In contrast, for Paytm, since the initial ban in March 2022 for onboarding new customers, 22 months have passed. Macquarie observed that during this period, the RBI conducted a thorough IT audit and identified ongoing non-compliance, suggesting that the lapses are considered significant by the regulatory authority.

The foreign brokerage asserted that it foresees no immediate resolution to the challenges at hand, implying that the RBI has essentially revoked Paytm’s pre-paid instrument license indirectly.

efferies suggests that the gross merchandise value (GMV) of the Paytm wallet might need to be wound down. Additionally, it highlights potential impacts on merchants using Paytm Bank, constituting 6% of devices.

The brokerage firm specifically notes that the GMV of Fastag is expected to be significantly affected, posing a substantial risk to both earnings and valuations. Jefferies emphasizes the need for further details from Paytm’s management to assess the full extent of these challenges.

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