Is worst over for Paytm? Stock trades near upper circuit for third consecutive day
Upstox
3 min read • Updated: March 19, 2024, 12:52 PM
Summary
Shares of One97 Communication Ltd, the parent company of Paytm, are trading near the 5% upper circuit for the third consecutive day as it looks forward to regaining its lost ground due to the payments bank crisis. The company also received third-party application provider status from NPCI in the previous week, before the RBI deadline of 15 March.
Paytm has faced tremendous heat in the past two months after RBI issued sanctions on the leading fintech player over its serious non-compliance in the payments bank vertical. Following this, the stock price has seen a steep correction of nearly 60% in early February as the company grappled with the regulatory action. However, the stock has surged nearly 28% from its all-time lows of ₹316 on February 16. So, is the worst over for Paytm?
The Background
On January 31, the RBI barred Paytm Payments Bank from accepting new deposits and lending credit due to non-compliance across various departments. Despite regular communication with the bank, these issues remained unaddressed, prompting the RBI to take decisive action, which shocked investors. Following the directive, Paytm's share price plummeted by nearly 60% from ₹785 per share on January 31 to ₹316 per share on February 16.
Subsequently, the central bank extended the deadline from February 29 to March 15, considering the convenience of the larger public. Another blow to Paytm occurred when its CEO, Vijay Shekhar Sharma, resigned from the board of Paytm Payments Bank. A new board, comprising ex-public servants and other senior executives, was constituted in response.
Throughout this process, circuit limits for Paytm were revised downwards, initially from 20% to 10% and later to 5%. These developments underscored the severity of Paytm's situation and contributed to the overall negative sentiment surrounding the company.
What's next for Paytm?
Having tackled the challenges stemming from Paytm Payments Bank, the company is now focused on resuming normal operations as the major hurdles related to the payment bank debacle are behind them. Paytm has obtained third-party application provider status from the National Payments Commission of India (NPCI) under the multi-bank model, offering significant relief. This status enables Paytm to continue serving its existing merchants, who were required to shift to other service providers following the payment bank's closure.
Furthermore, analyst reports indicate that Paytm has significantly reduced its exposure in the wallets business, minimising the impact of winding down this segment. Throughout the crisis, Paytm has efficiently transitioned its merchants to different banks for their nodal accounts, resulting in a nearly 10% month-on-month (MoM) loss of transaction value, as per experts' assessments.
Additionally, experts believe that the third-party application provider status will provide a stable foundation for Paytm to regain trust among the merchant community and eventually recover the lost business. By effectively managing these transitions and obtaining necessary approvals, Paytm aims to cover lost ground, rebuild its reputation, and strengthen its position in the market.
Conclusion
The share price of Paytm are trading near 5% upper circuit for the third consecutive day at ₹406 per share as the company looks forward to the ordinary course of business and regains its lost ground in the payments bank fiasco.