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

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.

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