Paytm, once lauded as a trailblazer in India’s fintech landscape, is grappling with a third consecutive day of stock declines as the Reserve Bank of India (RBI) contemplates canceling the license of Paytm Payments Bank Ltd. The regulatory scrutiny comes amid revelations of lapses at the payments bank, including multiple transactions exceeding regulatory limits and raising concerns about potential money laundering.
India’s central bank has already issued orders directing Paytm Payments Bank to halt a significant portion of its business, potentially impacting the broader prospects of the digital-payments pioneer. The license revocation, if implemented, could deal a severe blow to Paytm’s reputation and necessitate rapid efforts to secure new partnerships to mitigate the impact on its core digital-payments business.
Paytm’s stock took a hit of 10% on Monday, the most allowed in a single day, bringing the total decline over the past three trading days to over 40%. The company’s market value has plummeted to approximately $3.4 billion, marking an 80% decrease from its stock market debut in late 2021.
The regulatory concerns center on multiple lapses at Paytm Payments Bank, prompting the RBI to contemplate the cancellation of its license as early as March. Issues include transactions beyond regulatory limits and the subsequent halt to much of the bank’s operations. Paytm’s parent company, One97 Communications Ltd., released a statement asserting that neither the company nor its founder, Vijay Shekhar Sharma, is under investigation by the country’s anti-money laundering agency.
“In the past, certain merchants/users on our platforms have been subject to inquiries, and on those occasions, we have always cooperated with the authorities,” mentioned the disclosure to stock exchanges by One97 Communications Ltd. The company emphasized its cooperation with state agencies during such probes.
With Sharma holding a 51% stake in Paytm Payments Bank, which is permitted to take deposits but not allowed to lend, and One97 Communications owning the remaining stake, the regulatory actions have far-reaching implications for the fintech giant. The RBI’s order on January 31 restricted the payments bank from accepting deposits or allowing top-ups after February 29.
Paytm, backed by SoftBank Group Corp., has been in the regulator’s spotlight for questionable dealings between its banking arm and its popular payments app. In response to the latest regulatory actions, Paytm announced plans to expand its relationships with third-party banks to diversify its business and work toward profitability.
Among the options under consideration is the potential sale of the wallet business, with Jio Financial Services Ltd. emerging as a forerunner to acquire it, according to reports. The news has driven up the shares of Mukesh Ambani-controlled Jio Financial, signaling a potential realignment in India’s dynamic fintech sector.
As Paytm navigates these challenges, the company faces a critical juncture that will shape its future trajectory in India’s rapidly evolving digital payments landscape.