Paytm EBITDA may fall Rs 500 crore from RBI restrictions on payments bank

Paytm Payments Bank is taking immediate steps to comply with RBI directions, including working with the regulator to address their concerns as quickly as possible.

Paytm on February 1 tried to contain the damage after RBI cracked whip on Paytm Payments Bank (PBBL). The company informed exchanges that depending on the nature of the resolution, it estimates the worst-case impact at Rs 300-500 crore on its annual EBITDA.

"However, the company expects to continue on its trajectory to improve its profitability," Paytm said.

The Reserve Bank of India on January 31 imposed major business restrictions on Paytm Payments Bank. The central bank said a validation report of the external auditors revealed “persistent non-compliances and continued material supervisory concerns in the (Paytm Payments) Bank” thus forcing it to take such drastic action.

Following the strict action, Paytm informed exchanges that it is "taking immediate steps to comply with RBI directions, including working with the regulator to address their concerns as quickly as possible".

In its order against Paytm Payments Bank, RBI stated that no further deposits, credit transactions, or top-ups will be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024, other than any interest, cashbacks, or refunds that may be credited anytime.

"The nodal accounts of One97 Communications and Paytm Payments Services are to be terminated at the earliest, in any case not later than February 29, 2024. On March 11, 2022, the RBI directed Paytm Payments Bank to stop onboarding new customers with immediate effect," it said.

Also Read | RBI imposes major business restrictions on Paytm Payments Bank

Paytm, listed as One97 Communications Ltd (OCL), has been informed that the action against its associate PBBL does not impact user deposits in their savings accounts, wallets, FASTags, and NCMC accounts, where they can continue to use the existing balances. "OCL, as a payments company, works with various banks (not just Paytm Payments Bank), on various payments products. OCL started to work with other banks since starting of the embargo," said Paytm.

Going forward, Paytm will be working only with other banks, and not with Paytm Payments Bank. The Paytm Payment Gateway business (online merchants) will continue to offer payment solutions to its existing merchants. OCL’s offline merchant payment network offerings like Paytm QR, Paytm Soundbox, Paytm Card Machine, will continue as usual, where it can onboard new offline merchants as well, the company informed.

Concerning the direction on termination of nodal account of OCL and Paytm Payments Services Limited (PPSL) by February 29, 2024, OCL and PPSL will move the nodal to other banks during this period, Paytm said in a release. "OCL’s other financial services such as loan distribution, insurance distribution and equity broking, are not in any way related to PBBL and are expected to be unaffected by this direction," it said.

Separately, Paytm founder Vijay Shekhar Sharma reconfirmed to Paytm that he has not taken any margin loans, or otherwise pledged any shares that are directly or indirectly owned by him.

The fintech major also clarified that as per banking regulations, Paytm Payments Bank Limited is run independently by its management and board. "While OCL is allowed to have two board seats on the board of Paytm Payments Bank Limited, as a part of its shareholder agreement, OCL exerts no influence on the operations of Paytm Payments Bank Limited, other than as a minority board member, and minority shareholder," it said.

Paytm share price impact

Share price of One 97 Communications (Paytm) may crash to the lower circuit on February 1 due to the RBI crackdown on Paytm Payments Bank, effectively putting an end to the firm's banking activities. Institutional investors may dump the stock over concerns that the contagion may spread to Paytm’s other key businesses. This will give a body blow to its business, say analysts and fund managers.

Also Read | Paytm stock to see sharp cut as institutions may dump stock; reputational risk greater than earnings impact

Jayant Kharote, Equity Analyst at Jefferies India, said that Paytm’s wallet business, which is 5 percent of GMV, may need to be wound down. Also, Fastag GMV, where Paytm is the third largest player with 17 percent market share, will be majorly affected. All these customers will now likely migrate to other players in the market. "Key impact can be on lending business (more than 20 percent of revenues) if lending partners limit business due to operational/governance risks,” he said.

Fund managers and analysts are expecting a 5-15 percent earnings per share (EPS) impact. This will deepen the worry as the company has been trying hard to become profitable. There were expectations that the company would likely report breakeven on EBITDA in FY25.

Some leading fund managers told Moneycontrol on condition of anonymity there may be no point holding Paytm stock as the RBI move casts a long shadow on the way ahead.

On January 31, Paytm shares settled marginally lower at Rs 761.00 on the National Stock Exchange. The improving business performance led to a rally in Paytm share price as buyers returned even as some pre-IPO shareholders exited the stock. The stock is up 45 percent in the last one year.

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