Pay tm Market Woes Deepen as Shares Plummet to Record Low Amid RBI Clampdown

In a turbulent financial saga, Pay tm shares spiraled downwards, marking the third consecutive session of declines and reaching an all-time low of 438.35 Indian rupees ($5.28). The descent comes in the wake of the Reserve Bank of India’s (RBI) expanded restrictions on Paytm payment bank, triggering a more extensive impact than initially anticipated.

Pay tm Market Plunge and Trading Halt

Paytm witnessed a 10% drop in its shares, prompting a trading halt as it hit the daily trade limit imposed by local exchanges. Despite Paytm’s initial estimation of the RBI’s decision having an annual impact of $60 million, the firm saw a staggering $2.5 billion erosion in its market capitalization over three days – a decline exceeding 40%.

RBI’s Clampdown and Market Cap Erosion

The RBI’s recent curbs on Paytm Payments Bank restricted various banking services, including accepting fresh deposits and credit transactions. Paytm’s response included severing ties with its affiliate and seeking partnerships with other banks. However, the uncoupling process faces technical and perceptual challenges, with the RBI reportedly considering canceling Paytm’s Payments Bank license.

License Conundrum and Business Impact

The complexity lies in the fact that Paytm Payments Bank houses over 330 million wallet customers, and the transition to a different banking partner hinges on the RBI reinstating the PPI (Prepaid Payment Instrument) license, which Paytm had to surrender when obtaining the Payments Bank license. There is uncertainty surrounding the central bank’s stance and the looming deadline of February 29, with potential consequences for Paytm’s payment banking operations.

Potential License Cancellation and Business Sale

The severity of the situation extends to the possibility of the RBI canceling Paytm’s payment banking license altogether. If this occurs, Paytm may not retain a payment aggregator license, as the payment aggregator license was linked to the payment bank license. Reports suggest that Paytm is exploring options to sell its wallet business.

Audits, Investigations, and Customer Exodus

The RBI cited Paytm’s “persistent” noncompliance with an earlier order, raising supervisory concerns. While an audit revealed instances of noncompliance, specifics were not disclosed. Local media reported issues, including money laundering, leading to an Enforcement Directorate probe. Paytm denied the investigation, asserting that reported issues were addressed. However, the uncertainty has already started impacting Paytm’s customer and merchant base.

As Paytm grapples with the fallout from the RBI’s measures, the financial landscape for the digital payment giant remains uncertain. The company faces a crucial juncture, navigating regulatory challenges, potential license cancellations, and the task of rebuilding trust among its user base amidst ongoing market turbulence.