Paytm Shares Hit Upper Circuit After RBI Directs NPCI To Review 3rd Party Application Provider Request

Paytm's shares witnessed a 5% surge on Monday as the Reserve Bank of India (RBI) directed the National Payments Corporation of India (NPCI) to evaluate Paytm's plea to become a third-party application provider for unified payments interface (UPI) transactions. The development comes amid a series of challenges faced by One 97 Communications, the parent company of Paytm, including a recent directive from the central bank.

As of 10:30 am on the National Stock Exchange, One 97 Communications' shares were up by 5% at Rs 428.10 apiece, indicating a positive response from the market to the potential resolution of Paytm's UPI-related concerns.

The RBI's statement clarified that NPCI has been instructed to scrutinize One97 Communication's (OCL) request to become a third-party application provider (TPAP) for the UPI channel. This step is crucial for the continued UPI operation of the Paytm app, subject to compliance with regulatory norms.

If the NPCI approves Paytm's request, the digital payment giant will be able to resume processing payments through UPI. However, this would require the involvement of a set of newly identified banks to support the application. The RBI has suggested that four to five banks, capable of handling high volumes of UPI payments, should be engaged as service providers to Paytm.

In a move to mitigate risks and ensure seamless digital payments using the '@paytm' handle operated by Paytm Payments Bank, the central bank has restricted Paytm Payments Bank Limited (PPBL) from accepting additional credits into customer accounts and wallets after March 15, 2024. One 97 Communication holds a 49% stake in Paytm Payments Bank Ltd.

The RBI's directive is aimed at minimizing concentration risk in the UPI system and maintaining the uninterrupted functionality of digital payments through the Paytm platform. The decision reflects the regulatory body's commitment to the stability and security of the digital payment ecosystem.

Meanwhile, an advisory committee formed by One97 Communications in response to the RBI's action on its payments bank is yet to commence in-depth discussions to identify and address any issues. M. Damodaran, the head of the panel and former Securities and Exchange Board of India (SEBI) chairman, clarified that the committee is currently in its early stages and has not reached the phase where specific problems can be identified.

Damodaran emphasized that the panel is serving as an external advisor to Paytm during its interactions with the RBI. This underlines the complexity of the situation and the ongoing efforts to navigate through regulatory challenges.

The recent months have been challenging for Paytm in the stock market, with its share price witnessing a significant decline. Over the past month, Paytm's shares have plummeted by nearly 44%, reflecting the uncertainties surrounding the company. The stock has experienced a decline of more than 52% in the last three months and nearly 33% in the last year.

Investors and industry experts are closely watching the developments as Paytm strives to address regulatory concerns and secure the necessary approvals to continue its UPI operations.