Paytm Stock Tanks 20% on Termination of Ties with Payments Bank Following Regulatory Restrictions


In response to regulatory measures taken by India’s central bank, Paytm has decided to discontinue its association with Paytm Payments Bank.


The Reserve Bank of India (RBI) recently imposed stringent restrictions on Paytm Payments Bank, prompting Paytm to expedite collaboration plans with alternative banks.


The RBI’s directive prohibits several critical banking services, including accepting new deposits and facilitating credit transactions for Paytm Payments Bank, thereby prompting Paytm to sever its ties with the entity.


Paytm clarified that its loan distribution, insurance distribution, and equity broking operations are expected to remain unaffected by the RBI’s directive, as these activities are independent of Paytm Payments Bank.


Paytm Payments Bank currently houses 330 million wallet accounts and 30 million bank accounts. The news of the regulatory clampdown led to a 20% drop in Paytm’s shares shortly after the market opened.


In response to the regulatory measures, Paytm announced plans to shift its nodal accounts to other banks, ensuring the continuity of its payment gateway business for online merchants.


Paytm assured that its offline merchant payment network offerings, such as Paytm QR, Soundbox, and Paytm Card Machine, will continue without disruption. In a worst-case scenario, the company anticipates an annual EBITDA reduction of $36 million to $60 million.


Acknowledging the challenges ahead, Paytm expressed its commitment to expanding payment and financial services through strategic partnerships with other banks.

However, industry analysts caution that convincing banks to collaborate with Paytm might require more work.


Goldman Sachs analysts highlighted potential negative revenue impacts, estimating a 40-45% reduction with a corresponding downside in the company’s share value.


The parent company, One97 Communications, holds a 49% stake in Paytm Payments Bank, with the remaining equity owned by Paytm founder Vijay Shekhar Sharma.


While a payments bank license grants certain banking privileges, the RBI’s recent actions indicate persistent noncompliance and supervisory concerns. Paytm received final approval for its payments bank license from the RBI in early 2017.


This regulatory clampdown follows the RBI’s previous order in 2022, instructing Paytm Payments Bank to cease onboarding new customers.


The RBI cited ongoing noncompliance and supervisory concerns as the basis for its recent measures, signalling potential challenges for Paytm in resolving these issues in the near term.


 Analysts express concerns over the need for more comments from the RBI regarding possible steps towards resolution, indicating a potentially prolonged impact on Paytm’s operations.


Jefferies noted that the RBI’s order could lead to a direct effect of 20-30% on EBITDA and a reputational impact on lending partnerships, potentially delaying profitability.