Indian digital payments firm Paytm saw a 20 per cent drop in market value on Thursday as the central bank instructed its payment bank subsidiary to cease operations.
Paytm's stock had recently experienced a decline, reaching a six-week low of Rs 609, resulting in a loss of approximately $1.2 billion in the overall value of the company.
On Thursday, the company's stocks reached the lower limit of a trading band imposed by the exchange, according to Reuters.
The wipeout was a direct consequence of the Reserve Bank of India's directing Paytm Payments Bank on Wednesday to cease accepting deposits into prepaid instruments, wallets, and FASTags after February 29.
The central bank, however, allowed the bank to continue crediting interests, cashbacks, and refunds, while maintaining the permissibility of withdrawals and the utilisation of customer balances.
According to the RBI's directive, Paytm's bank is prohibited from offering Unified Payment Interface (UPI) facilities after February 29. The move has sparked concerns about the impact on revenues from Paytm's core payments business.
The bank, responsible for managing all 330 million wallet accounts under Paytm, plays a crucial role in the company's app and wallet ecosystem.
The potential inability to secure alternative banking partnerships for its payments bank could have adverse effects on Paytm's overall functionality and user experience.
The regulatory measures taken against Paytm Payments Bank are a consequence of prolonged non-adherence to the rules set forth by the central bank.
The RBI in its Wednesday statement said that a Comprehensive System Audit report and subsequent compliance validation report by external auditors revealed persistent non-compliances and continued material supervisory concerns in Paytm bank.
In response to these findings, the RBI invoked Section 35A of the Banking Regulation Act of 1949, empowering it to issue directives to banking entities under specific circumstances.
Paytm has announced its commitment to implementing the directives issued by the Reserve Bank of India (RBI).
The company anticipates a potential adverse impact on its annual earnings before interest, tax, depreciation, and amortization (EBITDA) in the range of Rs 3-5 billion ($36-$60 million) as a worst-case scenario.
Despite a 20 per cent increase since the previous year, Paytm's stock is currently trading at less than one-third of its initial listing price of Rs 1,950. The recent market downturn has led to a decline of more than 4 per cent in the company's shares since the beginning of this year.
In the competitive landscape alongside platforms like Walmart's PhonePe and Google's GPay, Paytm's app facilitates users in transferring funds, settling bills, and managing digital wallets widely used in India for transactions, ranging from restaurant bills to grocery purchases.
The widespread usage of the app has enabled Paytm to establish collaborations with various financial entities, offering a diverse range of products such as insurance, loans, and credit cards.
JPMorgan cut Paytm's rating to "underweight" from "neutral," lowering its target price by one-third to 600 rupees.
It wrote in its analysis, "While we don't believe that the order is an end of the road for Paytm, it materially impacts near-term growth, profitability, forces another pivot and necessitates it to restore credibility of durability of the business."
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