Shares of One 97 Communications, the parent company of Paytm, extended its freefall on Monday, as it dropped another 13 per cent on the back of negative news flow.
The Reserve Bank of India (RBI) has barred Paytm Payments Bank from adding new customers due to likely gaps in its technology systems.
The bank has also been directed to appoint an IT audit firm to conduct a comprehensive system audit of its IT system, the RBI said in a release.
RBI is also understood to be looking into the potential flouting of data-storage norms by PPBL. After issuing several show-cause notices to Paytm, RBI finally took this action. But this is not the first time that the regulator has taken action against the bank either. In its 4 odd years of existence, it has been penalized twice – in 2018 and 2021 for various issues.
Brokerage View
Brokerage firm Morgan Stanley downgraded Paytm to ‘equal-weight’ from ‘overweight’ as RBI action could increase regulatory uncertainty for the company.
Morgan Stanley has slashed its price target for the stock to Rs 935 from Rs 1,425. Brokerage firm Macquarie Securities India, which has an ‘underperform’ call on the stock, also cut its price target to Rs 700.
Macquarie said that the impact on the overall business of Paytm Payments Bank will not be substantial as it has already onboarded a very large customer base. That said, Macquarie believes that the RBI’s action against the company would lead to a significant impact on brand and customer loyalty.
RBI’s embargo will have an adverse impact on Paytm for signing up users for new PPBL wallets or savings or current accounts, ICICI Securities said. “Now, expecting moderation in the onboarding of new users. The adverse impact on incremental payment revenue (as wallets are a key monetizable payment instrument).
We revise our target price to Rs1,285 (earlier Rs1,352). Also, it may defer PPBL’s plan to apply for conversion into a small finance bank (though eligible to apply from May 22). Maintain ‘BUY’,” the brokerage said in a note Monday.
ICICI Securities also said recent instances of the embargo on a leading bank suggest that lifting of restrictions may take time, ostensibly referring to RBI restrictions on HDFC Bank Limited. In December 2020, RBI had directed HDFC Bank to temporarily halt all digital launches as well as new sourcing of credit card customers.
In the following various outages that the private lender faced. The restrictions were fully lifted on Saturday, after 15 months.
About Paytm Payments Bank
Paytm Payments Bank was incorporated in August 2016. It formally began its operations in May 2017 from a branch in Noida.
Paytm Payments Bank had 64 million savings accounts as of March 31, 2021, and over Rs 5,200 crore in deposits. It was also the largest Unified Payments Interface beneficiary bank. The lowest technical decline rate among beneficiary and remitter banks.
Vijay Shekhar Sharma-led One 97 Communications had made a tepid debut on November 18 last year. The scrip got listed at a discount of 9.30 per cent at Rs 1,950 on the NSE against the issue price of Rs 2,150 per share.
