RBI’s Move On Unsecured Loans Likely To Take A Toll On Paytm: BofA

RBI’s Move On Unsecured Loans Likely To Take A Toll On Paytm: BofA

SUMMARY

BofA noted that as per Paytm’s Q2 financials, 56% of its loan value came from the BNPL segment, 20% from merchant loans, and 24% from personal loans but it does not expect the RBI norms to impact the first two loan segments

BofA sees Paytm and its NBFC partners passing this rising expense to the consumers. The overall impact of this change in norms on Paytm’s FY25 EBITDA would be lower than 5%

Shares of Paytm fell 3.4% in two consecutive trading sessions at the end of last week but ended 1.4% higher on Monday

Fintech major Paytm’s business is likely to be impacted following the Reserve Bank of India’s (RBI) move to tighten norms for lenders disbursing unsecured loans, according to a research note by international brokerage BofA.

“RBI has fired its first warning shot this cycle after several attempts at cautioning the lenders over past few months – 25% higher risk weight on unsecured retail lending (somewhat expected) and bank lending to NBFCs. We expect this to also impact Paytm, with risks to our loan growth assumptions on the personal loan and some pressure on take-rates,” said analysts at the brokerage.

It is pertinent to mention here that the RBI’s latest order on unsecured loans last week also dragged down the overall domestic equity market, with financial and banking stocks being a laggard.

Shares of Paytm also fell 3.4% in two consecutive trading sessions at the end of last week.

BofA noted that as per Paytm’s Q2 financials, 56% of its loan value came from the BNPL segment, 20% from merchant loans, and 24% from personal loans. However, the brokerage does not expect the RBI norms to impact the first two loan segments.

“…BNPL is largely a 22-day product and an increase by 5-10 bps may not impact uptake materially… merchant loan comes under priority sector lending and hence we don’t see any impact on this segment,” the brokerage said, adding that personal loans would likely become expensive by at least 50 basis points (bps).

BofA sees Paytm and its NBFC partners passing this rising expense to the consumers. 

The overall impact of this change in norms on Paytm’s FY25 EBITDA would be lower than 5%, the brokerage said.

However, BofA also believes that Paytm’s pace of signing-up incremental partners in banks/NBFCs might slow down as the focus towards unsecured loans reduces from banks and NBFCs.

In fact, BofA India projected that most NBFCs will likely see double impact from RBI circular – a decline in capital-to-risk weighted assets ratio (CRAR) on higher risk weight of 125% (vs 100%) on consumer credit exposure categorised as retail loans, including credit cards, and a potential rise in the cost of incremental bank borrowings.

It must be noted that Paytm has witnessed a significant growth in its lending business over the last few quarters. The fintech major disbursed 1.32 Cr loans in total worth INR 16,211 Cr during the quarter ended September 2023, which was a 44% and 122% jump year-on-year, respectively. 

Despite the expected impact on Paytm, BofA has maintained its ‘buy’ rating on the stock and a price objective of INR 1,165, which implies an upside of 29.3% to the stock’s last close.

After a decline last week, Paytm shares ended Monday’s trading session 1.4% higher at INR 900.9 on the BSE.

You have reached your limit of free stories
Become An Inc42 Plus Member

Become a Startup Insider in 2024 with Inc42 Plus. Join our exclusive community of 10,000+ founders, investors & operators and stay ahead in India’s startup & business economy.

2 YEAR PLAN
₹19999
₹7999
₹333/Month
Unlock 60% OFF
Cancel Anytime
1 YEAR PLAN
₹9999
₹4999
₹416/Month
Unlock 50% OFF
Cancel Anytime
Already A Member?
Discover Startups & Business Models

Unleash your potential by exploring unlimited articles, trackers, and playbooks. Identify the hottest startup deals, supercharge your innovation projects, and stay updated with expert curation.

RBI’s Move On Unsecured Loans Likely To Take A Toll On Paytm: BofA-Inc42 Media
How-To’s on Starting & Scaling Up

Empower yourself with comprehensive playbooks, expert analysis, and invaluable insights. Learn to validate ideas, acquire customers, secure funding, and navigate the journey to startup success.

RBI’s Move On Unsecured Loans Likely To Take A Toll On Paytm: BofA-Inc42 Media
Identify Trends & New Markets

Access 75+ in-depth reports on frontier industries. Gain exclusive market intelligence, understand market landscapes, and decode emerging trends to make informed decisions.

RBI’s Move On Unsecured Loans Likely To Take A Toll On Paytm: BofA-Inc42 Media
Track & Decode the Investment Landscape

Stay ahead with startup and funding trackers. Analyse investment strategies, profile successful investors, and keep track of upcoming funds, accelerators, and more.

RBI’s Move On Unsecured Loans Likely To Take A Toll On Paytm: BofA-Inc42 Media
RBI’s Move On Unsecured Loans Likely To Take A Toll On Paytm: BofA-Inc42 Media
You’re in Good company