Paytm Stock Share Plummets After RBI Restrictions; Morgan Stanley Invests in Deep

– Paytm, India’s leading digital payments platform, faced a stock market crash after the RBI imposed restrictions on its banking services for violating KYC, AML, and customer grievance norms.

-The stock price of One97 Communications, which operates Paytm, fell 20% for two days in a row, hitting the lower circuit limit at Rs 487. The stock is down 77% from its IPO price of Rs 2,150.

– The RBI barred Paytm Payments Bank, a subsidiary of One97 Communications, from adding funds to customer accounts, issuing new debit cards, and opening new accounts from March 1, 2024.

– Paytm’s management tried to reassure its investors and customers that the company will partner with other banks to continue its operations. Paytm founder and CEO Vijay Shekhar Sharma said that the company’s app will continue to work beyond Feb 29 and that the company expects the worst-case impact of Rs 300-500 crore on its annual EBITDA.

– However, the street remained unconvinced by Paytm’s assurances, except for global financial major Morgan Stanley. A Singapore-based fund managed by Morgan Stanley bought 50 lakh Paytm shares at Rs 487, paying nearly Rs 244 crore for the stake. Morgan Stanley is one of the few brokerages that has a ‘buy’ rating on Paytm, with a target price of Rs 1,200.

– Morgan Stanley also bought a stake in Deep, a fintech startup that offers credit cards, personal loans, and insurance products. Morgan Stanley Asia Singapore Pte (ODI) acquired 10,00,000 shares of Deep at Rs 250 each, paying Rs 25 crore for the stake. Deep is backed by Sequoia Capital, Matrix Partners, and Tiger Global, among others. The startup claims to have over 10 million customers and a loan book of over Rs 1,000 crore.

– The contrasting moves by Morgan Stanley indicate that the fund is bullish on the fintech sector in India, but bearish on Paytm’s prospects. Paytm’s market share has been declining as rivals like PhonePe, Google Pay, and MobiKwik have been gaining ground. Paytm’s business model has also been questioned by analysts, who doubt its ability to generate profits and sustain growth. Paytm’s valuation, which was over $18 billion at the time of its IPO, has now fallen below $5 billion.

– Paytm’s stock crash is a stark reminder of the regulatory risks and competitive challenges that the fintech sector faces in India. While the sector has immense potential to tap into the large and under-served market of digital payments and financial inclusion, it also has to deal with the stringent and evolving norms of the RBI and other authorities. Paytm’s fate will depend on how quickly and effectively it can resolve its issues with the RBI and regain the trust of its customers and investors.

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