Paytm Fiasco: BSE, NSE Cut Fintech Giant’s Daily Trading Limits To 10% After Stock Rout

India’s prime stock exchanges – the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) – have halved the daily trading limit of shares for Paytm, days after the Reserve Bank of India (RBI) barred the fintech major’s banking unit from any deposits or credit transactions, or top-ups in any of its customer accounts.

Set up in 2017, Paytm Payments Bank is among the top payments banks in the country, providing a mobile banking platform and e-wallet services. Paytm’s parent firm, One97 Communications, holds a 49% stake in Payment Payments Bank.

Effective Monday (February 5), the new cap is set at 10%, down from the prior 20%. This decision trails a staggering $2 Bn plunge in Paytm’s valuation, triggered by intensified regulatory scrutiny over Paytm Payments Bank, Reuters reported.

Paytm’s market worth nosedived to a mere $3.7 Bn post the tumultuous week at the Mumbai bourses, marking a substantial $2 Bn decline. The shares plummeted, hitting the 20% daily limit on consecutive days, Thursday and Friday.

On Monday, Paytm stock fell another 10%, again hitting the lower circuit, extending its fall to over 42% in the last three sessions.

Meanwhile, the RBI is also reportedly mulling the cancellation of the operating licence of Paytm Payments Bank next month. 

As per  Bloomberg’s report, the central bank could undertake the move once the deposits of the payments bank’s customers are safeguarded, post the February 29 deadline for the payments bank, Bloomberg reported citing sources. 

As per the report, no final decision has been taken so far and the RBI’s plans may change based on Paytm’s representation.

Responding to questions from Inc42, a Paytm Payments Bank spokesperson said, “The recent direction from RBI is a part of the ongoing supervisory engagement and compliance process. The Bank always upheld compliance with supervisory instructions in its interactions with (the) regulator from time to time. We therefore request you to be guided by the press release of RBI dated January 31 and refrain from any further speculation.”

“No further deposits or credit transactions or top-ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards (National Common Mobility Cards), etc. after February 29, 2024, other than any interest, cashbacks, or refunds which may be credited anytime,” the central bank said in its order. 

It also ordered the termination of the Nodal Accounts of One97 Communications and Paytm Payments Services by February 29. 

The RBI attributed the move to Paytm Payments Bank’s “persistent non-compliance and continued material supervisory concerns”.

However, Paytm founder and chief executive officer (CEO) Vijay Shekhar Sharma said that the fintech giant will continue to work beyond February 29 after the RBI has tightened the reins on the fintech giant’s banking operations.

Taking to social media platform X, Sharma said, “…I, with every Paytm team member, salute you for your relentless support. For every challenge, there is a solution and we are sincerely committed to serve our nation in full compliance. India will keep winning global accolades in payment innovation and inclusion in financial services – with PaytmKaro as the biggest champion of it.”

Last week, brokerage firm Jefferies downgraded the payment aggregator to ‘underperform’ from a ‘buy’ call and reduced the price target (PT) for the stock by more than half to INR 500 from INR 1,050.

Jefferies’ new target price reflects a downside potential of over 34% for the Paytm stock.

“We cut EBITDA (ex-ESOP) by 46%/ 44% in FY25/26E led by a 7-10% cut to payments revenues and a 17-24% cut in lending revenues and compression in payments margins. Our sensitivity analysis shows that the impact of a 10% change in disbursements is low on revenues (2%), but high on EBITDA (15%). We adjust our DCF valuations to account for lower growth and margins. Our implied valuation multiple stands reduced by 30% to 15X FY26E EBITDA,” Jefferies said.

“RBI’s actions directly impact the wallet business and profitability of merchant payments business, which can impact EBITDA by 20-30%. We see the impact being much larger due to reputational concerns around the group. Lending business (~20% of revenues) can be significantly hit if lending partners cut back or limit their exposure. These drive us to cut FY25-26 EBITDA estimates by 45%, which will also delay profitability,” the brokerage firm added.

Paytm Payment Bank’s Frequent Run-Ins With The RBI

This is not the first time Paytm Payments Bank has come into the RBI’s crosshairs. 

In October last year, the central bank slapped the listed fintech giant’s subsidiary with an INR 5.39 Cr penalty for non-compliance with know-your-customer norms. 

At the time, the RBI also flagged six major issues with the payments bank, including failure to identify beneficial owners in respect of onboarded entities for providing payout services, the failure to monitor payout transactions and carry out risk profiling of entities availing payout services, and failure to report cybersecurity incidents without delay.

In March 2022, the RBI directed Paytm Payments Bank to stop onboarding new customers, a restriction which is still ongoing. While the payments bank expressed hope in September 2023 that the restrictions might be lifted in March 2024, the latest RBI action might have thrown a spanner in the works on that front.