Paytm Stock Plunges 40% in Two Days as RBI Cracks Down on Lending Business

Paytm’s stock witnessed a significant decline as it hit a 20% lower circuit for the second consecutive day. This comes as a result of the Reserve Bank of India imposing restrictions on Paytm’s lending business, following a similar ban in March 2022.

These regulatory actions from the RBI have raised concerns about Paytm’s compliance and governance practices, and have caused a stir in the market. Investors are worried about the potential long-term impact of these restrictions on the company’s overall performance and profitability.

The RBI restrictions have stopped it from accepting new deposits and carrying out credit transactions after February 29th, which has effectively shut down its lending operations.

This has caused the Paytm’s stock price to plunge by 40% in just two days, with brokerages downgrading it and slashing target prices. For instance, Jefferies downgraded Paytm to “underperform” with a target of Rs 500 (from Rs 1,050), while Macquarie maintained a “neutral” rating but cut to Rs 650.

Analysts view this development as negative, adding to regulatory pressure and potentially impacting earnings by 5-15%. The breakeven target of FY25 appears uncertain, which is causing concerns among investors.

What is the response of Paytm?

Paytm has responded by pausing its lending operations and is in talks with banks for partnerships. They estimate a worst-case impact of Rs 300-500 crore on annual EBITDA.

However, concerns remain regarding near-term solutions, as analysts see no quick fix, with RBI findings suggesting material lapses. Furthermore, the company faces continued regulatory scrutiny, casting a shadow on its future.

Achieving profitability by FY25 seems challenging, given the earnings impact and operational disruptions.

Conclusion

Paytm’s future appears to be hanging in the balance as it struggles to deal with the consequences of the RBI’s recent actions, which have caused both financial and reputational harm to the company.

The situation is being closely watched by investors, who are eagerly waiting to see how the company will handle this difficult phase and regain the trust of its stakeholders.