Moneycontrol Pro Panorama | Paytm's fall turns spotlight on policy risks

What are the takeaways from Paytm’s sudden decision to revisit its lending strategy?

Dear Reader, 

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. 

Shares of Paytm (One 97 Communications) tanked as much as 20 per cent to hit a low of Rs 650 on the bourses today after it announced its decision to reduce its small-ticket loan portfolio. This is the second debacle for Paytm investors since its listing in November 2021, when the stock plunged to Rs 472 (issue price of Rs 2,150) within a year.

The fintech firm’s decision comes after the Reserve Bank of India (RBI) increased risk weights in unsecured lending, including consumer loans under Rs 50,000. This segment comprises about two-thirds of Paytm’s total loan portfolio. The company, in an analyst call, stated that it would halve its buy-now-pay-later small ticket disbursals. While the company is optimistic of offsetting the impact by increasing its high-ticket lending, it would be an uphill climb to make good the shortfall. After all, non-banking finance companies (NBFCs) are established players in the high-value loans segment.

So, what are the takeaways from Paytm’s sudden decision to revisit its lending strategy? MC Pro’s Neha Dave writes here that the lending business is Paytm’s secret sauce and is critical to its earnings and valuations.  

From an industry standpoint, RBI’s intent is crystal clear. It prefers to be cautious after observing runaway growth in unsecured loans and an increase in delinquencies in this financial segment. Higher capital provisioning would ensure lenders are well-cushioned against risks of potential defaults while giving out personal loans.

With the RBI Monetary Policy Committee’s decision on rates expected tomorrow (Friday, December 8) against the backdrop of sudden tightening of lending norms, the stock markets appear to have turned jittery. The sharp rally in equities following BJP’s victory in most state elections last week, seems to have run its course.

Will there be more measures that could thwart credit growth in the quarters ahead? With the festive season behind, could credit growth slow down?

To be sure, it is too early to expect the central bank to pivot. The most recent gross domestic product (GDP) numbers have fuelled optimism towards revision in its annual growth forecast. But it is likely to stick to its cautious stance, as inflation is trending way above its non-negotiable 4 per cent target and the risks to inflation are still not out of the window. Crude oil prices are still a threat and food inflation, although trending lower, is still volatile. Consensus also suggests that RBI will stay focused on credit monitoring and liquidity management.

Any dramatic move from the status quo, expected in the RBI’s stance this time, will change the mood in financial markets. Stay tuned for our analysis on MPC’s decision tomorrow.

Investing insights from our research team

Margins of Krsnaa Diagnostics catch a flu

Himadri Speciality: Carbon companies scouting for new growth levers

Indian Metal and Ferro Alloys: Well placed with integrated operations

What else are we reading?

Start-up Street: Building and leveraging moats key to start-up success

Digital activists useful allies in fight against predatory loan apps

COP28: India’s compulsions vs commitments. A reality check

UltraTech Cement’s playbook to get future-fit

Aster DM Healthcare has its task cut out, post sale of GCC hospitals

Chart of the Day: Multi-fold jump likely in power sector capex until FY26

Mohamed El-Erian: The peculiar market divide on the rate outlook 
(republished from the FT)

Telangana: A crown of thorns awaits Revanth Reddy

Sam Altman – How leaders can endear

Elon Musk’s AI dreams are going in circles

Can Russia be India's new best agri friend?

Constitutional or not, wealth taxes are bad economics

Personal Finance

2024 General Elections: Does it make sense to pause your SIPs till the results?

Technical Picks: Bajaj Finance, ITC and Tata Motors (These are published every trading day before markets open and can be read on the app)

Vatsala KamathMoneycontrol Pro