Paytm shares tank 20% due to strict RBI restrictions

After the Reserve Bank of India announced the imposition of several major restrictions on Paytm on January 31, 2024, Paytm shares fell by 20 percent in early trade the next day i.e. on February 1.

RBI has also imposed restrictions on Paytm from accepting new deposits and conducting credit transactions after February 29. Paytm stock opened at lower circuit at Rs 609, down 20 per cent on NSE compared to the previous session's closing price.

On January 31, shares of the fintech company closed at Rs 761 per share. However, Paytm said that the RBI move will not impact users' deposits in their savings accounts, wallets, Fastag and NCMC accounts where they can continue to use the existing balance.

The stock has fallen by about 1 percent so far this year, while in 2023 it will decline by 27.45 percent. The mutual fund holds about 5 percent stake in Paytm as of the December 2023 quarter, compared to 2.79 percent a quarter ago.

The Reserve Bank of India said that a verification report by external auditors "revealed persistent non-compliance and continuing material supervisory concerns at Paytm Payments Bank which forced it to take such drastic action." Paytm informed the exchanges that it is "taking immediate steps to comply with the RBI directions including working with the regulator to address their concerns at the earliest."

Paytm Company informed the exchanges that depending on the nature of the resolution, it estimates there will be a negative impact of Rs 300-500 crore at the most on its annual EBITDA. "However, the company expects to continue to improve its profitability," Paytm said.

Paytm has informed the exchanges that founder Vijay Shekhar Sharma has not taken any margin loan or otherwise pledged any shares owned by him, directly or indirectly. At present Vijay Shekhar Sharma is the largest shareholder and owner of Paytm. In August 2023, Vijay Shekhar Sharma acquired 10 per cent stake from Antfin through his 100 per cent owned overseas entity Resilient Asset Management BV, increasing his stake to 19.42 per cent.

The development comes soon after the bank imposed major restrictions on the company's lending business, including a ban on accepting fresh deposits and carrying out credit transactions after February 29. Jefferies' new target price indicates a downside potential of over 34 per cent for Paytm stock, estimating huge reputational risks on Paytm following the RBI action.