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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.
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