In an exchange filing released after market hours on Friday, Paytm announced that the RBI has effectively cancelled Paytm Payments Bank’s banking licence. Paytm clarified that it does not have any exposure to the associate entity and provides no services in partnership with it. It added that Paytm Payments Bank operates independently.
“There is no direct financial impact on the company since, as previously disclosed, the company had already impaired its investment in PPBL as of March 31, 2024,” it added. “As informed earlier, Paytm (One 97 Communications Limited) and its services, which have been operating without interruption, will continue to operate uninterrupted. These include the Paytm app, Paytm UPI, Paytm Gold and all other services offered by its subsidiaries and associated companies, such as Paytm QR, Paytm Soundbox, Paytm Card Machines, Paytm Payment Gateway, Paytm Money, among others,” it further said.
This comes after more than two years of regulatory scrutiny and restrictions, including a ban on fresh deposits in 2024. Paytm had obtained a limited banking license in August 2015 that allowed it to take small deposits but not give out loans. The central bank said the bank’s operations were “detrimental” to depositors and public interest, citing compliance lapses, including issues around customer due diligence and governance. The general character of the management of the bank is prejudicial to the interest of depositors as also the public interest,” the statement said, adding “No useful purpose or public interest would be served by allowing the bank to continue.”
Later on Saturday, Paytm announced that PPBL’s board of directors and shareholders have approved the necessary resolutions to enable the winding up of the company. “The company wishes to assure its shareholders and investors that the winding-up of PPBL and the consequential cessation of the associate relationship are not expected to have any material impact on the business, operations, or financial condition of the company. The company continues to operate its businesses independently and in accordance with applicable laws and regulations,” it added.
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Bernstein on Paytm
RBI’s decision to cancel the banking license of Paytm Payments Bank is likely to be incrementally negative for its parent, Bernstein said in its note. The brokerage described the regulator’s language in its communication as “harsh” and “concerning.” That said, the Societe Generale Group-backed brokerage has retained an ‘Outperform’ rating on Paytm, with a target price of Rs 1,500, implying an upside of around 31% from the previous closing price.
“While Paytm has no role in the current management/board of PPBL (despite the 49% ownership), the harsh language in the RBI’s letter is concerning,” Bernstein said, noting the history of regulatory actions against the business.
“Post the RBI restrictions on Paytm Payments Bank Limited (PPBL) in early 2024, the company did put in time and effort to terminate the interlinkages between PPBL and the core business, reconstitute the board, and take steps to potentially revive operations of the bank,” the note said.
The brokerage sees no impact on current business or numbers as the operations of PPBL have been suspended for more than a year, and the company has created a clear separation between the payments bank and the parent company, especially after the regulatory action in early 2024.
Bernstein believes this development could clear the way for the company to apply for an NBFC or PPI license, which might enable Paytm to offer certain payment products (e.g., wallet) and credit products.
Goldman Sachs on Paytm
Goldman Sachs maintained its ‘Buy’ rating on Paytm shares, but reduced its target price to Rs 1,400 apiece from Rs 1,470. The latest target price implies an upside potential of nearly 31% from the stock’s previous closing price.
The international brokerage said it sees the RBI’s cancellation of the associate entity’s banking license as an incremental negative, although there is no direct financial impact on Paytm, ET Now reported. The key risk is the potential impact on customer or merchant sentiment, it said.
While this may act as a near-term overhang, Goldman Sachs added that the core business momentum of Paytm remains intact.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)