One 97 Communications Ltd., Paytm's parent company, saw its shares fall by around 8% to Rs. 1,056.05 in early trade on Monday, April 27. This highlights investors' response to the Reserve Bank of India (RBI) revoking the license of Paytm Payments Bank Limited (PPBL).
The fall comes after the RBI suspended PPBL's banking license on Friday amid non-compliance and said that the bank's affairs were conducted in a manner detrimental to the interest of its depositors. This is an escalation from previous bans in 2024, effectively ending Paytm's foray into banking.
While the regulatory action is a setback, Paytm said in a filing that it will have no financial effect on the company. The company reaffirmed that it does not have any exposure to PPBL or any material business arrangements with the banking entity, and added that all its operations are running smoothly.
Paytm pointed out that PPBL is a separate entity with no input from its board or management. It also said that its investment in PPBL was already impaired as of March 31, 2024, shielding the firm from any losses.
The company said that no services provided by the company are in partnership with PPBL, emphasising the independence. On Saturday, April 25, Paytm said that in view of the cancellation of its banking license by the RBI, the Board of Directors and Shareholders have PPBL’s board and shareholders have approved a plan to close the company as mandated. After the approval, PPBL will cease to be an associate entity of Paytm under the meaning of the Companies Act, 2013.
The stock market response may be negative in the short run, but analysts are more positive. Investors are hopeful, according to a PTI report, that the move will open up a new opportunity.
Bernstein said the cancellation of the license is "an incremental development" and added that Paytm had already "ring-fenced" the payments bank from its main business. The brokerage pointed out that Paytm’s ecosystem has not been disrupted.
Analysts also noted the benefits of regulatory flexibility. The move could potentially open the way for the company to explore other regulatory options, such as NBFC or PPI licenses, for credit and wallet businesses.
Also Read: RBI Cancels Paytm Payments Bank Licence After 2-Year Crackdown: Key Impact on Users & Services