Paytm shares fall 6% after RBI cancels bank licence

Paytm shares fall 6% after RBI cancels bank licence

Shares of One97 Communications, the parent company of Paytm, plummeted over 6% in early trade today.

This comes after the Reserve Bank of India (RBI) revoked the license of Paytm Payments Bank Ltd (PPBL). The move effectively ends any chance of revival for its banking arm.

The company's stock was trading at ₹1,077 per share, down by 6.1% from its previous close.

RBI's decision marks end of banking operations

The RBI's decision is the last regulatory action against Paytm Payments Bank, which has been under severe operational restrictions since January 2024.

The earlier restrictions had barred new deposits and led to a gradual wind-down of operations.

However, this latest move formally ends the entity's ability to function as a bank.

Limited near-term earnings impact for Paytm

In light of the RBI's decision, Paytm said that the development will not materially impact near-term earnings.

This is because the payments bank business had already become largely inoperative and its functions had been transitioned to a partner-led model.

However, this move removes any residual possibility of Paytm operating as an integrated financial services platform.

Shift to 3rd-party banks

Paytm has shifted to working with third-party banks for payments, settlements, and UPI operations.

This structure is usually associated with lower margins and higher dependency on partners.

From a financial perspective, the immediate earnings impact is seen as limited since the payments bank's contribution had already declined significantly due to regulatory curbs.

However, this move is viewed as a structural reset for the business that could cap long-term margin expansion and return ratios.

Paytm shares have risen about 22% over the past year

Despite today's decline, Paytm shares have risen about 22% over the past year, outperforming the Nifty 50 index which is down around 1.3% during the same period.

The company's focus will now likely shift to execution under this new partner-led model.

This includes maintaining stability in UPI market share, retaining merchants, and growing loan distribution.