Shares of Paytm parent One 97 Communications continued their downward trend on Thursday, hitting lower circuit for the third straight session to touch a fresh all-time low amid a report that the Enforcement Directorate (ED) has initiated a preliminary inquiry against Paytm Payments Bank Ltd (PBBL). The ED is investigating alleged violations related to the Foreign Exchange Management Act (FEMA) in PBBL and has also sought further clarification on the matter from the central bank, as per the report.
After hitting 10% lower circuit in the last two sessions, Paytm shares touched a revised circuit limit of 5% to ₹325.30 in opening trade on the BSE today. In the past 11 sessions, the share of Paytm has plummeted over 57% from ₹761 at the close on January 31, 2023, after the RBI stopped PPBL from taking new customers with immediate effect, while barring the company from taking further deposits or credit transactions or top-ups in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29. The market capitalisation of the fintech company has dropped by ₹27,336 crore to ₹21,000 crore, from ₹48,336 as on January 31, 2024.
Meanwhile, Paytm has clarified to exchanges that its associate PPBL does not undertake outward foreign remittance. “This is to further clarify that One 97 Communications Limited, its subsidiaries and its associate, Paytm Payments Bank Limited, have over time been receiving notices and requisition for information, documents and explanations from the authorities, including ED, with respect to the customers that may have done business with the respective entities, and provided the required information, documents and explanations to the authorities,” Paytm says in a BSE filing on February 14.
“The company and its associate have continued to provide such information, documents and explanations to the authorities as is being required by them,” it adds.
Earlier this week, the RBI Governor Shaktikanta Das said there won't be any "review" of its decision regarding PPBL, thereby putting an end to any chance of reprieve from the RBI. He said the decision regarding Paytm Bank was taken after a comprehensive assessment of its functioning.
Meanwhile, in a bid to strengthen its compliance, the board of One 97 Communications has formed a group advisory committee chaired by former SEBI chairman M Damodaran.
After the RBI action, most brokerages downgraded the stock and cut target prices, citing that the central bank’s notification action may bring an end to the operations of Paytm Payment Bank. As per the company, the RBI’s action is likely to have a worst-case impact of ₹300-₹500 crore on its annual EBITDA going forward. However, it expects to continue on its trajectory to improve its profitability.
Recently, Australian brokerage major Macquarie further downgraded the Paytm stock, cutting its 12-month price target from ₹650 to ₹275, while rating it ‘Underperform’ from ‘Neutral’. The brokerage firm, in its latest note, thinks the regulatory crackdown could cause a huge reduction in revenue for the Vijay Shekhar Sharma-led fintech major. Also, it thinks Paytm could see an "exodus" of its customers amid the uncertain future of its associate banking entity.
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