Paytm Shares Plummet After RBI Order To Stop Most Transactions: What We Know

RBI's action has sparked concerns that it could severely disrupt other Paytm services as well.

Image used for representational purposes only.

(Photo: iStock)

Paytm shares tumbled another 20% for the second day after curbs were imposed on its lending business by the Reserve Bank of India (RBI).

What curbs? From 29 February onwards, Paytm Payments Bank will no longer be able to accept fresh deposits, top-up customer accounts, or carry out credit transactions across its services.

• Paytm parent firm One97 Communications and Paytm Payments Services have also been directed to terminate their nodal accounts “at the earliest.”

• Customers can continue to withdraw and utilise money from their Paytm accounts, RBI said.

Know why: "The Comprehensive System Audit report and subsequent compliance validation report of the external auditors revealed persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action," the RBI said.

What is Paytm Payments Bank?

Paytm Payments Bank is the entity that processed transactions for fintech giant Paytm. It operates with a payments bank license, meaning that it can offer a range of banking services albeit with some restrictions. The RBI had issued the payments bank licence to Paytm in 2017.

One97 Communications owns a 49% stake in Payment Payments Bank while the rest is owned by Paytm founder Vijay Shekhar Sharma.

Why it matters: RBI's action against Paytm has sparked concerns that it could severely disrupt other Paytm services as well, such as its payment gateway platform and merchant-side business.

• "This is a definite negative development and adds to the already heavy regulatory overhang on the business," analysts at wealth management firm Bernstein were quoted as saying by TechCrunch.

Free fall? Paytm stock tanked after RBI announced the curbs imposed on the fintech giant.

• On Thursday, shares fell by 20% to INR 608.8 or $7.3 after markets opened and soon hit the lower circuit – halting trading for the day.

• On Friday, Paytm shares plunged by another 20%, opening at INR 487.20 on the Bombay Stock Exchange (BSE).

What they're saying: "The Company has been informed that this does not impact user deposits in their savings accounts, Wallets, FASTags, and NCMC accounts, where they can continue to use the existing balances," Paytm said in a stock exchange filing dated 1 February 2024.

• "Going forward, OCL (Paytm's parent company) will be working only with other banks, and not with Paytm Payments Bank Limited," the filing said.

• "OCL started to work with other banks since starting of the embargo. We now will accelerate the plans and completely move to other bank partners," it added.

Flashback: Last year, Paytm Payments Bank was penalised by the RBI for alleged violations involving the flow of data to servers located outside India.

• In March 2022, the RBI directed Paytm Payments Bank to stop onboarding new customers.

• In October 2022, Paytm Payments Bank was fined Rs 5.39 crore for alleged non-compliance with Know Your Customer (KYC) norms.