The RBI's payment bank ban might cause Paytm's EBITDA to drop by Rs 500 crore

The RBI's payment bank ban might cause Paytm's EBITDA to drop by Rs 500 crore

The RBI's payment bank ban might cause Paytm's EBITDA to drop by Rs 500 crore

Paytm estimates that, at worst, the RBI action may affect its yearly EBITDA by Rs 300 to Rs 500 crore, depending on the nature of the settlement.

In order to comply with the RBI's directives, Paytm Payments Bank is acting right now. This includes collaborating with the regulator to promptly resolve any issues they may have.

On February 1, Paytm made an effort to reduce losses after the RBI's crackdown on Paytm Payments Bank (PBBL). The business told the exchanges that, in the worst-case scenario, its annual EBITDA might be impacted by Rs 300–500 crore, depending on the outcome.

"However, the company anticipates to continue to improve its profitability," Paytm said.

On January 31, the Reserve Bank of India placed significant trading limitations on Paytm Payments Bank. The central bank claimed that it was compelled to take such harsh measures because a verification report from external auditors demonstrated that there was "persistent non-compliance and continuing material administrative concerns (Paytm Payments) at the bank."

Paytm told the exchanges that it is "taking immediate steps to follow the RBI directions, including working with the regulatory regulator to address their concerns at the earliest" after the stringent move.

No further deposits, credit transactions, or top-ups would be permitted in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024, according to the RBI's ruling against Paytm Payments Bank. Any potential credit for interest, cashback, or refunds might come at any moment.

One97 Communications and Paytm Payments Services' nodal accounts must be closed as soon as possible, but no sooner than February 29, 2024. The RBI ordered Paytm Payments Bank to cease accepting new clients on March 11, 2022, effective immediately. It stated.

The action against its affiliate PBBL would not affect customer deposits in their savings accounts, wallets, FASTags, or NCMC accounts where they may be accessed using their current balance, according to Paytm, which is listed as One97 Communications Limited (OCL). can go on doing. Paytm stated: "OCL, a payments provider, collaborates on a variety of payment solutions with other banks, not only Paytm Payments Bank. Since the prohibition commenced, OCL has been collaborating with other banks.

Paytm will no longer cooperate with Paytm Payments Bank; instead, it will only deal with other banks. Existing merchants of Paytm Payment Gateway will continue to get payment solutions from the company. According to the firm, OCL will continue to provide its offline merchant payment network services, which include Paytm QR, Paytm Soundbox, and Paytm Card Machine. It will also be able to onboard new offline merchants.

In response to the directive to close OCL and Paytm Payments Services Limited (PPSL)'s nodal account by February 29, 2024, Paytm said in a statement that OCL and PPSL would move the nodal to other banks during this time. "OCL's other financial services such as loan distribution of wealth, insurance distribution and equity broking have nothing to do with related to PBBL in any way and will likely remain unaffected by this direction," said the statement.

In a separate statement, Paytm founder Vijay Shekhar Sharma assured the platform that he has neither taken out a margin loan or pledged any of his own shares, either directly or indirectly.

The fintech giant also made it clear that Paytm Payments Bank Ltd. is independently managed by its board and management in accordance with banking standards. According to its shareholder agreement, OCL is allowed to have two board seats on Paytm Payments Bank Limited, but other than that, it has no control over the company's activities. Its only position is that of a minority stakeholder and board member.

Effect on Share Price of Paytm

The RBI's move against Paytm Payments Bank may cause One97 Communications (Paytm) share price to drop on February 1, therefore shutting down the company's banking operations. Because they are worried that the virus may spread to Paytm's other main operations, institutional investors would liquidate the shares. Fund managers and analysts predict that this will deal a serious damage to the company's operations.

According to Jayant Kharote, an equities analyst at Jefferies India, Paytm's wallet division—which generates 5% of GMV—might have to be split out. Furthermore, Paytm, the third-largest operator with a 17% market share in Fastag GMV, would suffer significantly. It is now possible that all of these clients will switch to other market participants. "The main impact could be on the lending business (greater than or equal to 20 per cent of revenue) if financing partners limit business by minimizing operational/governance risks," he said.

Analysts and fund managers predict an effect on earnings per share (EPS) of five to fifteen percent. This will make people even more concerned since the corporation is trying so hard to generate a profit. It was anticipated that the business will probably post EBITDA breakeven in FY25.

Leading financial managers told Moneycontrol, speaking on the condition of anonymity, that the RBI ruling might make it useless to hold onto Paytm shares going forward.

On the National Stock Exchange, Paytm shares ended the day slightly down at Rs 761.00 on January 31. As buyers returned and trading performance improved, the price of Paytm shares increased, however some pre-IPO owners sold their shares. Over the last year, the stock has increased by 45 percent.