Macquarie Highlights Contrasts in RBI Ban Handling: Largest Private Sector Bank Took 15 Months for Digital Business Ban Revocation, While Paytm Faces Near-Term Challenges Post Comprehensive IT Audit.
Current Paytm Stock Price: Macquarie Anticipates No Immediate Resolution to Issues, Suggests RBI’s Move Indirectly Revokes Paytm’s PPI License.
* Paytm’s payment bank accommodates over 33 crore wallet accounts.
* Existing customers face limitations on basic banking operations.
* RBI restrictions, preventing new credit and deposit operations, top-ups, fund transfers, and similar banking activities for Paytm Payments Bank until February 29, 2024, will adversely affect its ability to retain customers within its ecosystem. This, in turn, restricts the company from marketing payment and loan products, as outlined in Macquarie’s recent note.
With no sign of improvement in sight, Paytm shares continue to plummet, falling by 20% further. This leads to the lower circuit being activated.
Paytm shares experienced a 20% decline for the second consecutive day on February 2, following the Reserve Bank of India’s imposition of stricter lending restrictions. These restrictions encompassed limitations on new deposits and credit transactions after February 29. Brokerages reacted to the RBI regulation by lowering target prices for the stock.
Jefferies downgraded Paytm from ‘buy’ to ‘underperform,’ slashing the target price to ₹500 per share from ₹1,050. Macquarie, maintaining a ‘neutral’ rating, also reduced its target price to Rs 650 per share. Both brokerages expressed concerns over serious lapses identified by the RBI, foreseeing no immediate solutions to Paytm’s challenges.
Paytm responded by suspending lending platform activities temporarily as discussions with banks ensued. The company anticipates a potential worst-case impact of ₹300-500 Crore on its annual EBITDA, while fund managers and analysts predict a 5-15% effect on earnings per share (EPS), raising concerns amidst the firm’s profitability pursuit. Bhavesh Gupta, Paytm’s Chief Operating Officer, assured addressing lender concerns and clarifying the portfolio’s potential impact.
Also read: https://desisamachaar.com/paytm-payment-ban-in-india-by-rbi-w-e-f-29-feb/
We anticipate significant implications on revenue and profitability in the medium to long term, making it a critical aspect to monitor,” expressed Macquarie.
Drawing a comparison, Macquarie noted that the RBI took 15 months to lift its ban on digital business activities for the largest private sector bank. In contrast, for Paytm, the comprehensive IT audit conducted by the RBI after the initial ban in March 2022 indicates that the lapses are substantial. With nearly 22 months having passed since the ban on onboarding new customers, Macquarie sees no immediate resolution to these issues. The firm suggests that the RBI is effectively indirectly revoking Paytm’s PPI (pre-paid instrument) license.
Macquarie highlighted the significant challenge for Paytm lies in its strained relationship with the regulator, and moving forward, there’s a possibility that lending partners might reconsider their associations.
Stating that they haven’t interacted with the management or seen any official communication from the company at the time of writing, Macquarie’s perspectives are purely based on their interpretation of the RBI’s actions.
Despite the setback, Paytm’s payment bank still holds over 33 crore wallet accounts. Given the existing monthly transacting users (MTU) for Paytm standing at 10 crore, and considering the earlier ban primarily targeted new customer onboarding, Paytm might utilize its payment bank’s customer base for promoting payment and financial products.
Current users face limitations on essential banking functions such as credit, deposits, fund transfers, UPI transactions, FASTag toll payments (where Paytm holds a 17% market share with 6 crore users), bill payments, and wallet usage.
With these substantial restrictions on Paytm Payments Bank Ltd (PBPL), Macquarie emphasizes that this significantly impedes Paytm’s capability to retain customers within its ecosystem, consequently restricting the platform from marketing payment and loan products.
