Paytm shares: Jefferies says RBI restriction to have collateral impact on lending biz, cites risk to earnings, valuations
Paytm share price: Jefferies said there could be collateral impact on lending business, which account for 20 per cent of revenues, if Paytm's lending partners limit business due to governance risks.
- Feb 1, 2024,
- Updated Feb 1, 2024 8:28 AM IST
Jefferies in its latest flash note on One 97 Communications Ltd (Paytm) could see a collateral impact on lending business, which account for 20 per cent of revenues, if Paytm's lending partners limit business due to operational or governance risks, following the Reserve Bank of India's strong statement and imposing of restrictions on Paytm's payment bank due to non-compliance.
This, it said, can be key risk to earnings/ valuations and said it would await details from the management.
Following the announcement, Jefferies said the wallet gross merchandise value (GMV) may need to be wound down; merchants using Paytm Bank (6 per cent of devices) may be impacted while Fastag GMV will be majorly affected, it said. "This can be key risk to earnings/ valuations & we await details from management, it said
In March 2022, the apex bank had directed Paytm Payments Bank Ltd (PPBL) to stop onboarding of new customers.
"Hence, we understand that Paytm's incremental business with its Payments Bank was very limited. RBI has now stated that, "The Comprehensive System Audit report and subsequent compliance validation report of the external auditors revealed persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action". (RBI press release 31 Jan 2024)
No further deposits or credit transactions or top ups would be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024, other than any interest, cashbacks, or refunds which may be credited anytime. Jefferies noted that Fastag GMV, where Paytm is the 3rd largest player with 58 million customers and market share of 17 per cent would also be majorly affected.
"Payments business is 50 per cent of total revenues and while the management has not indicated the contribution from these segments, we estimate that these segments would be sub-10 per cent of segments' revenue and 5 per cent overall revenues," Jefferies said.
Withdrawal or utilisation of balances by its customers from their accounts including savings bank accounts, current accounts, prepaid instruments, FASTags and National Common Mobility Cards will not be permitted without any restrictions, upto their available balance.
"Balances in Paytm Payments Bank may be withdrawn, but this may have a marginal impact on Paytm's earnings. . The Nodal Accounts of One97 Communications Ltd and Paytm Payments Services Ltd. are to be terminated at the earliest, in any case not later than February 29, 2024.
The potential impact will depend whether the restriction is on either Nodal account of One97 with Paytm Payments Bank or (2) all Nodal accounts of Paytm. The former will have marginal impact on business, whereas the latter can have material impact," Jefferies said.
Lastly no other banking services, other than fund transfers (irrespective of name and nature of services like AEPS, IMPS, etc.), BBPOU and UPI facility would be provided by the bank after February 29, 2024.
Jefferies in its latest flash note on One 97 Communications Ltd (Paytm) could see a collateral impact on lending business, which account for 20 per cent of revenues, if Paytm's lending partners limit business due to operational or governance risks, following the Reserve Bank of India's strong statement and imposing of restrictions on Paytm's payment bank due to non-compliance.
This, it said, can be key risk to earnings/ valuations and said it would await details from the management.
Following the announcement, Jefferies said the wallet gross merchandise value (GMV) may need to be wound down; merchants using Paytm Bank (6 per cent of devices) may be impacted while Fastag GMV will be majorly affected, it said. "This can be key risk to earnings/ valuations & we await details from management, it said
In March 2022, the apex bank had directed Paytm Payments Bank Ltd (PPBL) to stop onboarding of new customers.
"Hence, we understand that Paytm's incremental business with its Payments Bank was very limited. RBI has now stated that, "The Comprehensive System Audit report and subsequent compliance validation report of the external auditors revealed persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action". (RBI press release 31 Jan 2024)
No further deposits or credit transactions or top ups would be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024, other than any interest, cashbacks, or refunds which may be credited anytime. Jefferies noted that Fastag GMV, where Paytm is the 3rd largest player with 58 million customers and market share of 17 per cent would also be majorly affected.
"Payments business is 50 per cent of total revenues and while the management has not indicated the contribution from these segments, we estimate that these segments would be sub-10 per cent of segments' revenue and 5 per cent overall revenues," Jefferies said.
Withdrawal or utilisation of balances by its customers from their accounts including savings bank accounts, current accounts, prepaid instruments, FASTags and National Common Mobility Cards will not be permitted without any restrictions, upto their available balance.
"Balances in Paytm Payments Bank may be withdrawn, but this may have a marginal impact on Paytm's earnings. . The Nodal Accounts of One97 Communications Ltd and Paytm Payments Services Ltd. are to be terminated at the earliest, in any case not later than February 29, 2024.
The potential impact will depend whether the restriction is on either Nodal account of One97 with Paytm Payments Bank or (2) all Nodal accounts of Paytm. The former will have marginal impact on business, whereas the latter can have material impact," Jefferies said.
Lastly no other banking services, other than fund transfers (irrespective of name and nature of services like AEPS, IMPS, etc.), BBPOU and UPI facility would be provided by the bank after February 29, 2024.