Paytm shares: How will RBI's action on Paytm Payments Bank impact stock

RBI's order to halt business at Paytm's payments bank unit raises fears of hits to profitability

Shares of Indian payments firm Paytm are set to open lower on Thursday, after a move by the country's financial regulator to halt business at Paytm's payments bank unit sparked fears of hits to the company's profitability and reputation.

FILE PHOTO: RBI banned Paytm Payments Bank from accepting new deposits starting in March. (REUTERS)

The Reserve Bank of India (RBI) on Wednesday ordered Paytm Payments Bank, an associate of Paytm, to stop accepting fresh deposits in its accounts or popular wallets from March, raising worries that the move could erode revenue from the company's main payments business.

Paytm said it will take steps immediately to comply with the RBI's directions, and that it expects a worst-case impact of 3 billion-5 billion rupees ($36 million-$60 million) to its annual earnings before interest, tax, depreciation and amortisation (EBITDA).

Jefferies double downgraded Paytm's stock to "underperform" after the RBI's move and slashed its target price to 500 rupees from 1,050 rupees, saying regulatory and reputational issues can each impact 20%-30% of EBITDA. The stock, which rose 20% in 2023 and the same amount so far this year, closed at 761.2 rupees on Wednesday.

The brokerage cut its EBITDA estimates, excluding employee stock ownership plan, for Paytm by 46% in fiscal 2025 and 44% for fiscal 2026, seeing a 7%-10% fall in payments revenues, a 17%-24% drop in lending revenues, and compression in payments margins.

"Paytm's business impact will largely come from reputational concerns arising from governance/compliance and hence, the path to resolution will be from stronger compliance with regulations and revoking of RBI measures," Jefferies said.