Shares of One 97 Communications, the parent company of Paytm, witnessed a sharp decline during early trade on Monday following a significant decision by the Reserve Bank of India (RBI). The central bank has officially cancelled the license of Paytm Payments Bank, leading to a rapid fall in the company's stock price. This regulatory move has effectively ended all hopes for the resumption of operations for the company's banking arm, while during the trading session, Paytm shares were seen trading at ₹1,077, marking an 8 percent drop from the day's lowest levels.
Regulatory Action and Operational Impact
The market slump came as investors reacted to the final regulatory measure taken against Paytm Payments Bank. It's important to note that Paytm Payments Bank had been under strict restrictions from the Reserve Bank of India since January 2024. Previous actions had already prohibited the bank from accepting new deposits and mandated a gradual winding down of its operations. However, this latest step by the RBI has completely stripped the entity of its capacity to function as a bank.
Company Statement on Financial Consequences
In a statement addressing the development, the company clarified that this move wouldn't have a significant impact on its near-term earnings. The company explained that the payments bank business had already been largely discontinued, and its operations had been transitioned to a partner-based model. This strategic shift was intended to mitigate the impact of the ongoing regulatory challenges faced by the banking subsidiary.
Goldman Sachs Maintains Buy Rating with Revised Target
According to a report by ET, international brokerage firm Goldman Sachs has maintained its ‘Buy’ rating on Paytm shares despite the negative news. However, the firm has revised its target price downwards, moving it from ₹1,470 to ₹1,400 per share. This new target price suggests a potential upside of approximately 31% from the stock's previous closing price, indicating continued long-term confidence in the core business.
Key Highlights of the Development
The international brokerage firm noted that while the cancellation of the banking license is a negative development for Paytm's associate company, it doesn't expect a direct financial impact on Paytm itself. The primary concern highlighted by the firm is the potential risk to customer and merchant trust. Goldman Sachs further added that although this news might exert pressure on the stock in the short term, the underlying momentum of Paytm's core business remains intact.