Paytm Share Price Update: One 97 Communications Drops 8% Following RBI’s Cancellation of Paytm Payments Bank License
Shares of One 97 Communications, the parent company of Paytm, experienced a significant decline on Monday, plummeting by as much as 8% to an intraday low of Rs 1,057 on the National Stock Exchange. This drop followed the Reserve Bank of India’s (RBI) decision to revoke the banking license of Paytm Payments Bank, leading to the announcement of the subsidiary’s closure. In a statement, Paytm clarified that it has no operational or financial ties to the bank and assured users that its services would continue without interruption.
RBI’s Decision and Its Implications
The RBI’s decision to revoke the banking license of Paytm Payments Bank comes after more than two years of regulatory scrutiny. The central bank cited concerns over compliance issues, governance, and the management’s conduct, stating that the bank’s operations were detrimental to depositors and contrary to public interest. Paytm Payments Bank, which received its license in August 2015, was restricted from accepting new deposits as of early 2024. Following the RBI’s announcement, Paytm’s board and shareholders approved resolutions to initiate the winding-up process for the bank. Despite this closure, Paytm emphasized that it would not materially affect One 97 Communications’ business operations or financial standing, as the investment in the bank had already been fully impaired by March 31, 2024.
Market Reaction and Analyst Outlook
The market reacted sharply to the news, with analysts expressing mixed sentiments about the future of Paytm. Bernstein, a brokerage firm, indicated that the RBI’s decision could have a mildly negative impact on One 97 Communications. However, they maintained an ‘Outperform’ rating with a target price of Rs 1,500, suggesting a potential upside of approximately 31% from the stock’s previous closing level. Bernstein noted that while Paytm holds a 49% stake in the bank, it has had no involvement in its management, which may mitigate some concerns. The firm also highlighted that the bank’s operations had been effectively suspended for over a year, allowing for a clear separation between the bank and its parent company.
Future Prospects for Paytm
Despite the challenges posed by the RBI’s decision, analysts believe that Paytm could explore new avenues for growth. Bernstein suggested that the company might seek a Non-Banking Financial Company (NBFC) or Prepaid Payment Instrument license, which could enable it to expand its offerings in digital wallets and credit products. Goldman Sachs echoed a similar sentiment, reaffirming its ‘Buy’ recommendation for Paytm while adjusting its target price to Rs 1,400 per share. They noted that while the RBI’s decision is a marginal negative development, it is unlikely to have a direct financial impact on the company. However, they cautioned that customer and merchant sentiment could be affected in the short term.
Continued Operations Amid Challenges
In light of the RBI’s actions, Paytm has reassured its users and investors that all services will remain operational. This includes the Paytm app, UPI services, and various offerings through its subsidiaries, such as Paytm QR and Paytm Money. The company has emphasized its commitment to compliance with applicable laws and regulations, ensuring that its core business functions independently of the now-defunct Paytm Payments Bank. As the situation develops, Paytm aims to maintain its market position and continue serving its customers effectively.
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