Paytm Payments Bank Crisis: Why No One Is Buying Paytm Shares, Fell By 40% In 2 Days? PaytmKaro Talk Of Town!

From dil ke account se, to UPI and QR Payments ke liye, to India kahe -- PaytmKaro, a slogan which has transformed time after time. Currently, this popular chant is the talk of the town, rocking both digital payments and fintechs in the country. There's panic, confusion and chaos with investors dumping the largest fintech Paytm's share price on exchanges to customers wondering what will happen to their day-to-day transactions after February 29. How did Paytm, the eye-candy of digital payments come to face regulatory scrutiny to immense loss in market value?

Paytm Share Price:

Approximately Rs 45,000 crore of wealth is eroded from Paytm shares in two days. One 97 Communications, the parent company of Paytm, has hit back-to-back 20% lower circuits since February 1st.

Lower circuits mean there are several sellers in a listed share but no buyers. In Paytm, this has been the case from February 1-2. On Friday, the stock price ended at Rs 487.05 apiece, locked at its 20% lower circuits.

Paytm shares took a further hit after brokerages like Jefferies, Maquire, JP Morgan and Morgan Stanly trimmed their target prices on Paytm. These global brokerages held high optimism on Paytm shares with the potential of crossing over Rs 1,000 long, even when Paytm saw a steep correction after its listing.

Not just that, Paytm shares fall even below the latest target prices of these brokerages.

JP Morgan has downgraded its outlook on Paytm to Underweight with a cut in target price of Rs 600 per share. MS maintained 'Equal Weight' on Paytm but also trimmed the target price to Rs 690 per share.

Meanwhile, Jefferies downgraded Paytm to 'Underperform' while lowering the target price to Rs 500 per share. Macquarie also maintained 'Neutral' on the company but cut the target price of Rs 650 per share.

So why are Paytm shares taking the beating of bears?

Paytm Payments Bank Crisis:

Things turned upside down for Paytm, after RBI on January 31, 2024, directed Paytm Payments Bank Ltd (PPBL or the bank) to stop onboarding new customers with immediate effect. RBI said, "The Comprehensive System Audit report and subsequent compliance validation report of the external auditors revealed persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action."

Further, RBI directed that no further deposits or credit transactions or top-ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024, other than any interest, cashback, or refunds which may be credited anytime.

Also, withdrawal or utilisation of balances by its customers from their accounts including savings bank accounts, current accounts, prepaid instruments, FASTags, National Common Mobility Cards, etc. are to be permitted without any restrictions, up to their available balance. No other banking services, other than those referred to in (ii) above, like fund transfers (irrespective of name and nature of services like AEPS, IMPS, etc.), BBPOU and UPI facility should be provided by the bank after February 29, 2024.

Moreover, the Nodal Accounts of One97 Communications Ltd and Paytm Payments Services Ltd. are to be terminated at the earliest, in any case not later than February 29, 2024. Lastly, RBI directed that settlement of all pipeline transactions and nodal accounts (in respect of all transactions initiated on or before February 29, 2024) shall be completed by March 15, 2024, and no further transactions shall be permitted thereafter.

Since then there has been confusion and panic among customers as to whether they will be able to carry their transactions via the Paytm app.

After RBI's significant restriction, Jefferies in a note said, "RBI, in a strong statement, has imposed restrictions on Paytm's payment bank due to non-compliance. The key impact can be on the lending business (+20% of revenues) if lending partners limit business due to operational/ governance risks. Also: a) wallet GMV (5% of total) may need to be wound down; b) merchants using Paytm Bank (6% of devices) may be impacted; c) Fastag GMV will be majorly affected. This can be a key risk to earnings/ valuations.."

PaytmKaro:

To restore investors' and customers' faith, Founder & CEO Vijay Shekhar Sharma assured users by saying, "To every Paytmer, Your favourite app is working, and will keep working beyond 29 February as usual. I, with every Paytm team member, salute you for your relentless support."

Sharma further added in a post via his X handler, "For every challenge, there is a solution and we are sincerely committed to serving our nation in full compliance. India will keep winning global accolades in payment innovation and inclusion in financial services - with PaytmKaro as the biggest champion of it."

The fintech giant has said that it is set to expand its existing relationships with leading third-party banks to distribute payments and financial services products. Following the RBI's directive, Paytm customers need not worry as it has said that given below services won't face any restrictions and are up and running:

Paytm And Paytm Payments Bank Not Same Entity?

In another statement, Madhur Deora, President and Group CFO at Paytm said that both by design and structure, the fintech company and its associates are not and cannot be one.

"There may be this impression that Paytm and Paytm Payment Bank are one, but by design and by structure, it is not and they cannot be. First, it is an associate company and second is not an associate company in the sense that is some Bank. And first and foremost a bank is that it has to follow the governance that a bank is supposed to follow, which is to say that has to have its independent management team, which reports to the board and the matters that have to go to committees of the board where can only be independent directors," he explained.

The president of Paytm further added that a bank has to have independent compliance and risk teams too.

Paytm, as a payments company works with various banks (not just its associates), on various other products. The company has been working with other banks for the past two years and will now accelerate the plans and will completely move to other partners. The next phase of the company's journey is to continue to expand its payments and financial services businesses, only in partnership with other banks.

The fintech company in an exchange filing also stated that it is allowed to have two board seats on the board of its associate as a part of its shareholder agreement and it does not influence the operations of the bank.

Lastly, the company said, "We would take this opportunity to clarify that as per banking regulations, Paytm Payments Bank Limited is run independently by its management and board. While OCL is allowed to have two board seats on the board of Paytm Payments Bank Limited, as a part of its shareholder agreement, OCL exerts no influence on the operations of Paytm Payments Bank Limited, other than as a minority board member, and minority shareholder."

Paytm is India's leading mobile payments and financial services distribution company. Pioneer of the mobile QR payments revolution in India, Paytm builds technologies that help small businesses with payments and commerce. Paytm's mission is to serve half a billion Indians and bring them to the mainstream economy with the help of technology.