Paytm shares experienced a 20% daily limit drop on both Thursday and Friday, resulting in a $2 billion loss in market value. The decline followed an RBI directive instructing the bank to halt its popular mobile wallet business and other activities due to “persistent non-compliance and supervisory concerns.”
Paytm Payments Bank is at risk of losing its operating license next month, pending the protection of customer deposits. The Reserve Bank of India (RBI) issued a directive on Wednesday, instructing the bank, which is 49% owned by Paytm’s parent company, to cease its widely-used mobile wallet business and other activities. The RBI cited “persistent non-compliance and supervisory concerns” as reasons for the order.
A recent Bloomberg report indicates that the regulatory authority might cancel Paytm Payments Bank’s license after the February 29 deadline, which marks the end of the fintech’s banking arm allowing customers to replenish their savings accounts through the popular digital payment wallet. It’s noteworthy that a final decision is pending, and the RBI’s stance could potentially change based on representations made by Paytm.
Despite a high-profile public debut in late 2021, Paytm’s stock has faced a significant decline of over 70%. Investors raised concerns about the company’s profitability, and it engaged in regulatory disputes. Recently, the shares experienced a 20% daily limit drop on consecutive days, resulting in a $2 billion loss in market value, following an order from the Reserve Bank of India (RBI).
The RBI’s directive is a response to various violations, including the misuse of customer documentation rules and the non-disclosure of material transactions by Paytm. These regulatory concerns have contributed to the challenges faced by Paytm in the stock market.
A representative from Paytm Bank stated that the directive from the central bank is part of an ongoing supervisory engagement and compliance process. The bank asserts that it has adhered to the regulator’s instructions.
Paytm, backed by SoftBank Group Corp., has been under regulatory scrutiny for a while, receiving multiple warnings over the past two years regarding questionable dealings between its well-known payments app and its less prominent banking arm.
The bank had been flagged for onboarding numerous customers without proper know-your-customer (KYC) documentation. Additionally, transactions of significant amounts, surpassing regulatory limits, were reported to be conducted in accounts with minimal KYC compliance.
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