Paytm CEO Vijay Shekhar Sharma in Talks with RBI Over Regulatory Concerns
Vijay Shekhar Sharma, the CEO of Paytm, recently held discussions with officials from the Indian Central Bank to address regulatory issues, Based on information from sources who are knowledgeable about the situation. This meeting comes shortly after the Reserve Bank of India (RBI) imposed restrictions on Paytm's banking arm, instructing Paytm Payments Bank to halt the acceptance of new deposits in both its accounts and digital wallets due to concerns regarding compliance with regulations and supervision.
One of the sources said discussions are underway to address RBI's regulatory concerns, and the company has requested an extension of the Feb. 29 deadline. Paytm has also been seeking clarity from the RBI regarding the transfer of its licence for the wallets business and digital highway toll payment service Fastag, according to a source. "The RBI heard Paytm out without making any commitments".
The market value of Paytm experienced a significant decline of approximately 42%, resulting in a loss of $2.5 billion, amidst apprehensions regarding the broader implications for the company. This decline stems from concerns over the impact on various facets of Paytm's business, particularly given that Paytm Payments Bank plays a crucial role in powering numerous features of the digital payment application. This places Paytm in competition with other platforms such as Walmart's PhonePe and Google. Furthermore, as per a source familiar with the situation, the regulatory actions taken by the RBI recently might result in the potential revocation of Paytm's license.
On Tuesday, the stock reached an all-time low after reports emerged indicating that India's federal anti-fraud agency was examining whether the company's platforms had committed breaches of foreign exchange regulations. A spokesperson for Paytm refuted any allegations of violating foreign exchange laws, describing the accusations as "baseless and factually inaccurate." Subsequently, the company's shares rebounded from earlier losses, surging by up to 8% during the day's trading session and ultimately closing 6% higher at 465 rupees.
Avinash Gorakshakar, who leads research at Profitmart Securities, suggested that the rise in share price might be a temporary recovery known as a "dead-cat bounce" following the recent decline, highlighting the persistent negative sentiment surrounding the stock. Despite this, Bernstein revised its target share price downward to 600 rupees from 950 rupees while maintaining an outperform rating. "While the regulatory action will no doubt have a lasting impact on investors' assessment of the business model risk and of the management's ability to handle regulatory risk, we expect the company to successfully execute the operational changes required to overcome the restrictions", Bernstein analysts said.
