Responding to the Reserve Bank of India move to bar Paytm Payments Bank, an associate of One 97 Communications, the fintech company has said it will take steps immediately to comply with the RBI’s directions.
As a result, it expects a worst-case impact of Rs 300 crore (USD 36.12 million) to Rs 500 crore to its annual earnings before interest, tax, depreciation and amortisation (EBITDA).
One 97 Communications will cease working with Paytm Payments Bank and start working only with other banks, it said.
The company has been informed that the RBI’s action does not impact user deposits in their savings account, wallets, FASTags and NCMC (National Common Mobility Card) accounts, where they can continue to use existing balances, the statement added.
The RBI had in 2022 asked the bank to stop adding customers. A subsequent audit revealed “persistent non-compliances and continued material supervisory concerns in the bank”, the central bank has said on Wednesday.
The regulator used a legal provision that allows it to act in the interest of depositors, and did not specify a timeline for reviewing the restrictions imposed on the bank.
Brokerage firm Jefferies in its latest note on One 97 Communications, has downgraded Paytm to ‘underperform’ from a ‘buy’ call while slashing the price target for the stock by more than half to Rs 500 from Rs 1050 earlier.
It said that it could see a collateral impact on lending business, which accounts for 20 per cent of revenues, if Paytm’s lending partners limit business due to operational or governance risks, following the Reserve Bank of India’s statement imposing restrictions on Paytm’s payment bank due to non-compliance.
“Key impact can be on the lending business (+20 per cent of revenues) if lending partners limit business due to operational or governance risks,” Jefferies said.
It added that the balances in Paytm Payments Bank may be withdrawn, but this may have a marginal impact on Paytm’s earnings.
Anticipating major reputational risks to weigh in on Paytm following the RBI action, Jefferies’ new target price reflects a downside potential of over 34% for the Paytm stock.
Jefferies also estimated the direct impact of the RBI action Paytm’s wallets and payments business to be around 20-30 per cent of its EBITDA. On that account, Jefferies also cut its FY24-26 EBITDA estimates for Paytm by 45 per cent, which will also delay its profitability.