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Business News/ Markets / Stock Markets/  Paytm share price hits 5% upper circuit as RBI asks NPCI to review third-party app provider request
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Paytm share price hits 5% upper circuit as RBI asks NPCI to review third-party app provider request

The NPCI should facilitate four to five banks, with an ability to process high volumes of UPI payments, to act as service providers to Paytm, the RBI said on Friday.

Paytm share price has plunged nearly 44% in the last one month, while the stock is down more than 52% in three months. (Photo: Bloomberg)Premium
Paytm share price has plunged nearly 44% in the last one month, while the stock is down more than 52% in three months. (Photo: Bloomberg)

Paytm share price were locked at 5% upper circuit on Monday after the Reserve Bank of India (RBI) advised the National Payments Corporation of India (NPCI) to examine Paytm’s request to become a third-party application provider for unified payments interface (UPI) payments.

The shares of One 97 Communications, the parent company of Paytm, were up 5% at 427.95 apiece on the BSE.

“NPCI has been advised by the RBI to examine the request of One97 Communication (OCL) to become a third-party application provider (TPAP) for UPI channel for continued UPI operation of the Paytm app, as per the norms," RBI said in its statement.

If approved, this would allow Paytm to continue processing payments via UPI, but will need a set of newly identified banks to back the app.

Read here: RBI asks NPCI to review Paytm’s application for third party application provider

The NPCI should facilitate four to five banks, with an ability to process high volumes of UPI payments, to act as service providers to Paytm, the RBI said on Friday.

The central bank has barred Paytm Payments Bank Limited (PPBL) from accepting further credits into its customer accounts and wallets after March 15, 2024.

One 97 Communication, which owns the Paytm brand, holds a 49% stake in Paytm Payments Bank Ltd.

According to the RBI, the directive has been issued to ensure seamless digital payments by UPI customers using ‘@paytm’ handle (operated by the Paytm Payments Bank) and minimise concentration risk in the UPI system.

Global brokerage firm Morgan Stanley sees the above move by RBI as a positive development, and will closely watch NPCI’s response to the request. 

Approval from NPCI would ensure quick migration of Paytm’s UPI customers, resulting in limited disruption or challenges to its business operations and user engagement over the medium term. It will also limit the potential impact on Paytm’s non-payment business operations, Morgan Stanley said.

Goldman Sachs also believe RBI’s clarification that @paytm UPI handles can be seamlessly migrated to other banks (if NPCI grants TPAP approval to Paytm) resolves a major unknown for Paytm (from the recent RBI action against PPBL). 

According to Goldman Sachs, if NPCI grants approval to Paytm to operate as a TPAP, then Paytm would be able to retain majority of its MTU base, and consequently continue its ability to monetize such users by cross-selling other products. 

“Per our recently published scenario analysis, if Paytm is able to smoothly transition a majority of UPI users, and resume lending products with limited disruption, we see an implied value per share of 750 for Paytm, or 84% upside from the current share price. However, we do expect some user and merchant share loss in the interim due to increased competitive intensity, and we note that visibility on ramp up of lending (including status of partners) remains low," Goldman Sachs said.

In its base case, it assumes Paytm’s MTU base declines to 80-85 million in FY25, vs c.100 million at present. It is Neutral-rated on Paytm with an unchanged 12-months target price of 450 per share.

Also Read: 'Too early…': Paytm advisory panel chief M Damodaran on identifying issues with fintech firm

Meanwhile, the advisory committee formed by One97 Communications after the RBI's action on its payments bank, is yet to begin deeper conversations to identify any issue, the Press Trust of India reported the head of the panel M. Damodaran as having said.

“We are an external advisor. At this point they (Paytm) are dealing with RBI," said Damodaran.

The former Securities and Exchange Board of India (SEBI) chairman also mentioned that the panel is at its too early stage and is yet to reach on the phase where it would be able to identify the problem.

Paytm share price has plunged nearly 44% in the last one month, while the stock is down more than 52% in three months. 

At 9:45 am, Paytm shares were locked at 5% upper circuit at 427.95 apiece on the BSE. 

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Published: 26 Feb 2024, 09:33 AM IST
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