Paytm's Stock Dives 20% After RBI Orders Banking Arm Shutdown

Paytm's Stock Dives 20% After RBI Orders Banking Arm Shutdown

BENGALURU - India's Paytm (PAYT.NS) shares continue to tumble, experiencing a 20% drop for a second consecutive day following the Reserve Bank of India's (RBI) directive to halt operations for its banking arm. Despite CEO Vijay Shekhar Sharma's assurances that the digital payments app will function normally, the market value of Paytm has plummeted by approximately $2 billion, marking its most significant business and reputational crisis to date.

The RBI's action was taken due to Paytm Payments Bank's prolonged non-compliance with rules and supervisory concerns. The banking unit plays a pivotal role in powering various features of India's leading digital payments app, competing with giants like Walmart's PhonePe and Google. Effective March 1, the bank will be barred from new deposits, credit transactions, and wallet uploads, with fund transfers also prohibited.

Vijay Shekhar Sharma remains optimistic about forging new partnerships with banks, asserting that the app will continue to operate seamlessly. However, Paytm's shares have witnessed a two-day slump, losing 36% in value since the RBI's order. Currently, trading at 487.2 rupees, near record lows from 2022, the company is valued at $3.7 billion.

Paytm's President and COO, Bhavesh Gupta, anticipates a return to normalcy by March, expressing positive discussions with the RBI. Analysts have downgraded the stock, with JPMorgan highlighting the impact on Paytm's profit pools, network effects, and credibility, significantly affecting its core payments business, which constitutes 59% of revenues.

The RBI's previous fines and restrictions on Paytm have contributed to its ongoing struggle. In 2021, a $650,000 fine was imposed for non-compliance, including "know your customer" rules. In 2022, the bank was barred from acquiring new customers, with a comprehensive IT systems audit ordered.

Additionally, Paytm's digital highway toll payment service, FASTag, faces disruption as users won't be able to replenish after February 29, impacting its 17% market share. The central bank's persistent efforts to bring Paytm into compliance underscore the challenges faced by the company, following a lackluster stock market listing and concerns about its valuation and business model.

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