- One97 Communications Ltd’s shares plunged nearly 12% on Monday, hitting an all-time low of ₹ 672.10 apiece.
- The RBI barred Paytm Payments Bank Limited from onboarding new customers and directed Paytm to appoint an IT audit firm to conduct a full System Audit of its IT system.
- This is not the first time that the RBI has pulled up financial operators.
Shares of Paytm’s Parent company One97 Communications Ltd plunged nearly 12% on Monday, hitting an all-time low of ₹ 672.10 apiece, the lowest since listing on the Bombay Stock Exchange. Its shares tumbled 13.29% on the NSE to ₹672.
This happened after the Reserve Bank of India (RBI) barred Paytm Payments Bank Limited from onboarding new customers. The central bank has directed Paytm to appoint an IT audit firm to conduct a full System Audit of its IT system.
Why did the RBI suspend Paytm from onboarding new customers?
“Onboarding of new customers by Paytm Payments Bank Ltd will be subject to specific permission to be granted by RBI after reviewing the report of the IT auditors. This action is based on certain material supervisory concerns observed in the bank.” said the RBI, exercising powers under Section 35A of the Banking Regulation Act, 1949.
Under section 35A of the Banking Regulation Act, 1949, India’s central bank may “prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company.”
The RBI is yet to disclose the specific issues that it has with Paytm’s financial systems or norms. However, as per reports, the RBI has taken issue with Paytm’s protocols relating to Know Your Customer (KYC), data privacy, data storage and outsourcing of data.
What does it mean for users?
There will be no immediate impact of the RBI’s directive on Paytm’s current customers and they will be able to use the service to carry out app-related transactions.
“Any new users coming to the Paytm app can create Paytm UPI handles, and link them to their existing PPBL account or to other bank accounts. However, new users cannot, until further notice, sign up for new PPBL wallets or PPBL savings or current accounts,” said Paytm in a statement.
What are analysts saying?
“Sentiments have been affected since the IPO because of valuations, this is another negative as it can also affect their chances of upgrading to a small finance bank,” said independent market expert Ambareesh Baliga.
“The biggest problem is going to be that they wanted to apply for an SFB licence, I don’t think it will come soon or at all,” said Kush Katakia, CEO at Beanstalk Advisory.
Paytm Shares: Should you buy, sell or hold?
Brokerage firm Macquarie has maintained a target price of ₹700 on Paytm with an ‘underperform rating’.
Morgan Stanley has downgraded its call to ‘equal weight’ from ‘overweight’ and slashed its target price from ₹1,425 to ₹935.
“If you have patience and a long-term view of more than 5 years, you can invest up to 7 per cent of your risk capital,” Ravi Singhal, vice chairman at GCL Securities said.
“The stock may see more selling pressure and may touch the level of 500 in the medium term,” said Ravi Singh, Head of Research and Vice President, Share India.
Is this a reason to worry?
Last year, Paytm launched an initial public offering of ₹18,300 crores. The IPO price was ₹2150. It has reached a low of ₹702.55 which is about two-thirds of its issue price.
This is the third time that Paytm Payments Bank is facing action from the banking regulator since its inception in May 2017.
This is not the first time that the RBI has pulled up financial operators. In July last year, it restricted Mastercard onboarding new customers citing non-compliance with local data storage guidelines.
Later, HDFC Bank was prohibited from launching new digital bank schemes or issuing new credit cards. The central bank pointed to discrepancies in the bank’s internet and mobile banking systems. The RBI lifted the restrictions that were placed on the fresh digital launches of HDFC Bank today and the share prices surged 2% in early trade.
