Paytm share price gains for 2nd straight session, jumps 10% after Vijay Shekhar Sharma's meeting with FM

Paytm parent company One97 Communication's share price rose 10 percent, providing relief to the investors, amid reports that the fintech firm's founder Vijay Shekhar Sharma met Finance Minister Nirmala Sitharaman to discuss the Reserve Bank of India's (RBI) restrictions.

RBI has instructed Paytm Payments bank to halt new deposits and credit transactions starting from February 29 due to regulatory concerns and non-compliance issues. Following this directive, Vijay Shekhar Sharma, the founder of Paytm, reportedly met with the Finance Minister, the day after discussing a plan with RBI to address these regulatory issues.

Despite Sharma's efforts, reports suggest that the central bank declined to offer any concessions to Paytm Payments bank, such as allowing the migration of accounts to other banks or extending the February 29 deadline.

Read here: PhonePe, Google Pay or BHIM; Which app gained the most due to Paytm crisis?

The stock rose as much as 10 percent to its intraday high of ₹496.75, extending gains for the second straight session. It ended over 3 percent higher in the previous session (February 6).

The central bank's refusal poses a significant setback for Paytm, requiring the migration of Payments Bank accounts to third-party banks well in advance of the deadline to maintain smooth operations of the payments interface. This move necessitates swift action from Paytm to ensure a seamless transition for its customers and maintain functionality.

However, in the 3 previous sessions before that (between Feb 1 and 5), the stock crashed over 42 percent, hitting lower circuits in each of these sessions.

The stock is 77 percent down from its IPO price of ₹2,150 and over 50 percent away from its 52-week high of ₹998.30, hit on October 20, 2023. In February till date, the stock has lost almost 36 percent after a 20 percent rise in January. Meanwhile, in the last 1 year, the stock has declined 19 percent.

Read here: RBI’s action on Paytm Payments Bank raises important questions

Meanwhile, Paytm also found itself under scrutiny when rumors emerged suggesting that the company, along with its associated firm and CEO/founder, were under investigation by government agencies for potential breaches of foreign exchange regulations and money laundering.

In response, Paytm vehemently denied these allegations, labeling them as baseless speculations. The company clarified that reports indicating investigations into the violation of foreign exchange rules by Paytm or its associated entity, Paytm Payments Bank Limited (PPBL), had no factual basis. Furthermore, Paytm had previously refuted claims of any investigation by the Enforcement Directorate regarding OCL (One97 Communications Limited), its associates, or its management.

While the RBI put severe restrictions on Paytm Payment bank operations, citing non-compliance with KYC guidelines and other issues; Paytm has informed that the RBI curbs would not impact user deposits in their Wallets, FASTags, NCMC accounts and savings accounts.

Read here: Paytm's Sharma knocks doors at Mint Road, North Block

Paytm said the users can continue to use the existing balances and added that it was taking immediate steps to comply with RBI directions, including working with the regulator to address their concerns as quickly as possible.

"The company has been informed that this does not impact user deposits in their savings accounts, Wallets, FASTags, and NCMC accounts, where they can continue to use the existing balances," the company said last week.

Furthermore, amid reports of Mukesh Ambani's Jio Financial Services acquiring the Paytm Wallet, the firm clarified that it has not been in any negotiations in this regard.

Following the entire debacle, several brokerages slashed their target prices on Paytm's stock last week. Among them, Jefferies set the lowest target at ₹500. Meanwhile, Macquarie, which had previously suggested a target of ₹650 for the stock, cautioned about the significant repercussions of the RBI's actions. The brokerage warned that these measures could seriously hinder Paytm's capacity to retain customers within its ecosystem.

Read here: Paytm CEO in talks with RBI on regulatory concerns, say sources

Bernstein has also lowered its target to ₹600 from ₹950 while maintaining an ‘outperform’ rating.

"While the regulatory action will no doubt have a lasting impact on investors' assessment of the business model risk and of the management's ability to handle regulatory risk, we expect the company to successfully execute the operational changes required to overcome the restrictions," it said.