Paytm CEO Vijay Shekhar Sharma in talks with RBI on regulatory concerns, say sources

Paytm's Founder-CEO Vijay Shekhar Sharma, held discussions with the Reserve Bank of India (RBI) on February 5, to address regulatory concerns, Reuters reported citing two sources. This comes in the wake of regulatory curbs imposed on its banking affiliate — Paytm Payments Bank Limited (PPBL).

The central bank had on January 30 directed PPBL to cease accepting new deposits in its accounts and digital wallets from March. The action was taken due to supervisory concerns and non-compliance with rules, leading to a decline in Paytm's shares.

Also Read | The Paytm saga so far… from RBI intervention to stock crash and sale speculation

Extension Request and Seeking Clarity

According to one source Reuters spoke to, ongoing discussions were held to address the RBI's regulatory concerns and also included a request from the company to extend the deadline beyond February 29. Paytm is also seeking clarity from the RBI on the transfer of licenses for the wallets business and Fastag digital highway toll payment service.

According to a second source, the RBI listened to Paytm's concerns without making commitments. As of February 5, Paytm shareholders had incurred a loss of $2.5 billion, with concerns about the impact on Paytm's business, given that PPBL powers most features of the popular digital payments app.

Also Read | Paytm denies FEMA probe, terms media reports ‘misleading, baseless and malicious’

Paytm and the RBI did not immediately respond to queries, the report added.

Investigation and Market Reaction

The stock hit a record low on February 6 following a Reuters report stating that India's federal anti-fraud agency, the Enforcement Directorate (ED) is investigating potential violations of foreign exchange (FEMA) rules by platforms run by Paytm. A Paytm spokesperson denied any violations, calling the allegations unfounded.

Also Read | Vijay Shekhar Sharma: From architect of fintech powerhouse Paytm to controversies

Despite the initial plunge, Paytm's shares later rose by as much as 8 percent, trading up 4.2 percent at ₹457. Analysts at Bernstein suggested that the earlier market reaction was an overreaction. They anticipate the company successfully navigating operational changes to overcome restrictions.

Bernstein adjusted its target price on Paytm's stock to ₹600 from ₹950 but retained an outperform rating. They acknowledge the lasting impact of regulatory action on investors' assessment of business model risk and management's ability to handle regulatory challenges.