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Shares of One 97 Communications Ltd., the parent company of Paytm, declined 8% on Monday, April 27, after the Reserve Bank of India (RBI) cancelled the Paytm Payments Bank (PPBL) licence.
The cancellation is effective from April 24, 2026. RBI in a statement said PPBL is prohibited from conducting business of 'banking' and that the central bank will initiate winding-up via High Court.
RBI statement
RBI said the PPBL operations were conducted in a manner detrimental to depositors' interest. The general character of bank management is prejudicial to depositors' and public interest, RBI said.
There is no useful purpose of public interest served by allowing the bank to continue, the central bank stated. PPBL failed to meet the licence conditions and regulatory norms, it added.
Regulatory backdrop
The move follows a multi-year crackdown on PPBL. The RBI action comes after KYC and governance lapses.
The bank had stopped onboarding new customers since March 2022. Meanwhile, deposits, top-ups, credits were restricted from January to February 2024 and wallets and accounts were effectively frozen from March 2024.
Paytm response
Paytm, in an exchange filing, said it has no exposure or material business link with PPBL and it offers no services in partnership with the bank as well.
Paytm said PPBL operates independently and there is no board overlap.
Paytm said One 97 Communications Ltd. had already impaired its ₹227 crore investment in PPBL as of the end of financial year 2024.
On April 25, the PPBL board and shareholders passed resolutions to wind up the company. PPBL's winding-up will have no material impact on One 97 Communication Ltd.'s business, operations, or financial conditions, the exchange filing added.
Customer deposits still stuck: Sources
Meanwhile, over ₹800 crore customer deposits are still stuck in PPBL, people in the know told CNBC-TV18. As much as ₹400 crore is in frozen accounts and another ₹400 crore are unclaimed deposits with PPBL, sources said.
PPBL had 10 crore operational accounts post the RBI crackdown, while remaining are mule accounts, dormant or frozen.
Sources said past compliance lapses may weigh on future approvals and uncertainty remains over regaining wallet / prepaid payment instruments (PPI) licence, sources said.
PPI had earlier contributed ₹500 crore towards the company's annual EBITDA.
Impact
The licence cancellation formalises closure of the dormant entity. The move is a final step in regulatory clean-up of PPBL, which has had no operational banking business since March 2024.
There is no financial impact of the same.
Paytm had secured the third-party application provider (TPAP) licence and migrated the UPI handle to partner banks in 2024.
The wallet business housed under PPBL is the only casualty as it is frozen since March 2024.
Brokerage positive on Paytm
Brokerages Bernstein and Jefferies are positive on Paytm and see up to 30% upside from its previous closing price.
Bernstein has an "outperform" rating on Paytm with a price target of ₹1,500 per share, while Jefferies has a "buy" recommendation on the stock with a target price of ₹1,350 apiece.
Bernstein said RBI, while cancelling the PPBL licence, cited persistent concerns regarding the bank's operations being detrimental to depositors' interests, weak management government, failure to meet public interest considerations, and non-compliance with conditions of its payments bank licence.
It said given its history of regulatory actions against business, this comes as an incremental negative development. However, there is unlikely to be any impact on the company's numbers as it had taken a write-off related to its investments in PPBL. Hence, no one-offs are expected either, Bernstein stated.
For the super optimistic investor, this development could be seen as clearing the way for the company to apply for an NBFC or PPI licence, which can pave the way for certain payments products, such as wallets, and credit products to be offered by Paytm, the brokerage added.
Jefferies said in 2024, RBI had restricted PPBL on concerns regarding its operations and since then, wallet is shut, UPI handles are transferred, investment is written off, agreements are terminated and the bank's board is reset and the CEO is a former executive of IDBI Bank.
As per RBI, PPBL's assets exceed liabilities. All of Paytm's services continue to be operational, Jefferies said.
Of the 22 analysts who have coverage on the stock, 16 have a "buy" rating, five have a "hold" rating and one has a "sell" rating.
Stock reaction
Shares of One 97 Communications Ltd. were down 5.4% ₹1,084.95 apiece in early trade on Monday. The stock has gained 7.6% in the past month but has declined 16% this year, so far.
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