In a shocking turn of events, Paytm, the Indian financial technology giant, faces a critical juncture as the Reserve Bank of India (RBI) imposes restrictions on its banking arm, Paytm Payments Bank. As the news circulated, Paytm share came down by several percentage points. Let’s delve into Paytm’s history, operations, the controversies surrounding its recent clash with the regulatory authorities, and its impact on Paytm shares.
Table of Content
History and Growth
Paytm started as a mobile and DTH recharge platform. It was established in 2010 by Vijay Shekhar Sharma under One97 Communications. Over the years, it expanded its services, becoming a prominent player in digital payments, financial services, and even venturing into sectors like e-commerce and gaming. In 2021, Paytm’s parent company, One97 Communications, witnessed one of the largest initial public offerings (IPO) in India.
Controversies and Backing
Since its IPO in November 2021, Paytm’s stock has witnessed a roller-coaster ride, hitting an 80% decline from its issue price of Rs 2,150. Amid its meteoric rise, Paytm faced controversies, including a significant stake acquisition by Chinese e-commerce giant Alibaba Group in 2015. Subsequent investments from SoftBank and Berkshire Hathaway further fueled its growth. Despite occasional setbacks, Paytm continued diversifying its services, launching products like Paytm Gold, Paytm Payments Bank, and Paytm Money.
The Recent Setback
The current crisis for Paytm unfolds as the RBI imposes restrictions on Paytm Payments Bank, effective from February 29. The restrictions include halting new customer onboarding, limiting existing customers’ fund transactions, and a complete stop on new deposits. The move comes after the RBI cited “persistent non-compliance” and “material supervisory concerns.”
Interestingly, this is not the first time that the RBI has taken action against the company. In March 2022, the Reserve Bank of India prohibited Paytm Payments Bank from enrolling new customers following an investigation that revealed the unauthorised sharing of customer data with entities based in China, holding an indirect stake in Paytm Payments Bank.
Impact on Users
For Paytm users, the aftermath of February 29 is substantial. No new accounts can be created, and existing users face limitations on Paytm wallets, Fastags, and Mobility Cards. Paytm reassures that existing users can still use online services, and offline merchant networks will continue as usual. The RBI restrictions prohibit debit, credit transactions, fund transfers, bill payments, and UPI facilities through Paytm after February 29. Users can only withdraw from existing account balances.
What to Expect
The recent RBI restrictions led to a 20% lower circuit on two consecutive days, further denting investor confidence. The Paytm share price today (on 02 Feb, 2024) stood at ₹ 487.20. Analysts predict a potential worst-case impact of Rs 300 to 500 crores on Paytm’s annual EBITDA. Governance concerns and operational risks could also affect Paytm’s lending business, which contributes 20% of its revenues.
While it is difficult to make a future prediction on the Paytm share price, many experts are of the opinion that the downward spiral may continue in the near term. Several leading brokers have significantly slashed the Paytm stock target and many have also changed their calls on the share of the company.
Conclusion
In a surprising twist for the fintech giant, Paytm finds itself at a crossroads, navigating regulatory challenges imposed by the RBI. As users await further clarity on the situation, the impact on Paytm’s trajectory remains uncertain. This setback emphasises the evolving landscape of digital finance in India and raises questions about the intersection of innovation and regulatory compliance in the fintech space. Paytm’s journey, marked by highs and lows, takes an unexpected turn, leaving users and industry observers with a sense of anticipation and apprehension.
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