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Why did RBI Ban Paytm?
The Reserve Bank of India (RBI) banned Paytm Payments Bank Ltd (PPBL) from receiving deposits, top-ups and conducting other banking operations from February 29, 2024. RBI banned Paytm, citing a system audit and compliance validation report from external auditors.
The ban covers various financial offerings, including prepaid cards, wallets, FASTags, and others. Paytm has informed its users that its UPI services would be impacted by the RBI’s regulation. The fintech giant is now aggressively pursuing to cover for its actions.
The company is in talks with other banks to create a seamless experience for its consumers, emphasising its dedication to providing alternatives within its app. Paytm's President and COO, Bhavesh Gupta, explained the company's strategy during an analyst meeting on February 1.
He emphasised that Paytm is working to shift businesses that accept UPI payments from its associate bank to other banking partners. This action is carried out in adherence to rules issued by both the National Payments Corporation of India (NPCI) and the Reserve Bank of India.
In its formal release, the RBI emphasised that customers could withdraw or use funds from their accounts, including savings bank accounts, without restriction. Despite the restrictions on certain operations, the Paytm app and its services remain available.
Source: (1)
Paytm's Stock Plunge
The aftermath of the RBI ban has had a substantial influence on Paytm's stock performance. The stock had a shocking 20% lower circuit limit for two consecutive trading days, indicating a significant decline.
This reduction comes after the RBI imposed restrictions on Paytm Payments Bank's operations, particularly in light of a system audit report and compliance validation by external auditors.
Paytm's stock is currently trading at ₹487.20 per share, a 77.34% decrease from its initial listing price of ₹2,150 in November 2021. This slump presents issues for investors who purchased the company at its initial public offering.
The whirl mount of Paytm's stock over the last year, along with the recent precipitous decrease, has caused brokerage firms to reduce their ratings, indicating probable issues ahead. Paytm's market cap decreased from ₹48,247 crore to ₹30,888 crore following the RBI's action.
Mutual funds with a 4.99% stake in Paytm lost ₹869 crore as the price fell sharply. Foreign institutional investors (FIIs), who own more than 63.7%, and individual investors, who own 30.2%, both suffered losses of ₹11,000 crore and ₹5,332 crore.
Notably, SoftBank, a key stakeholder, has gradually reduced its position in Paytm in recent quarters. All this asking one question, is Paytm done for?
Source: (2)
What did Paytm do Wrong?
The RBI noted violations such as the misuse of customer documentation regulations and the failure to disclose key transaction information. There are reports that the RBI may consider cancelling PPBL's operating licence as early as next month, pending the protection of depositors' interests.
The central bank's order includes a moratorium on new credit and deposit operations, top-ups, fund transfers, and other banking activities after February 29, 2024. With over 330 million wallet accounts, PPBL is a critical component of Paytm's ecosystem, and these limits may limit the company's ability to retain clients.
Source: (3)
The severity of potentially cancelling the permission highlights the regulatory scrutiny of Paytm's operations. Paytm is at a crossroads, juggling regulatory challenges and industry change. The RBI's clampdown has far-reaching consequences for Paytm's operations and market position.
As the crisis evolves, stakeholders, investors, and industry analysts keep a close eye on developments, awaiting the next chapter in Paytm's journey.
