Paytm stock plunges 20% as it announces non-issuance of loans below ₹50,000

Indian financial services giant Paytm witnessed a sharp decline of 20% in its stock price on Thursday, triggering concerns among fintech investors. The drop followed Paytm’s announcement of plans to reduce the issuance of personal loans under ₹50,000. This shift is a response to recent regulatory tightening by the Reserve Bank of India (RBI) and a move towards more conservative lending practices.

Shares of Paytm, trading at ₹812 on Wednesday afternoon, plummeted to ₹650, marking a significant market cap loss of $1.1 billion. The stock did recover slightly but closed with an 18.69% loss at ₹661.30. This downturn adds to a challenging month for Paytm, with its share price declining by 24.4% in December.

Paytm’s decision to curtail low-value personal loans aligns with recent actions by the RBI, which raised concerns about the risks associated with small personal loans. The central bank implemented tighter norms for consumer loans, leading Paytm to reevaluate its lending strategy. These regulatory changes have implications not only for Paytm but for the broader fintech sector.

In response to the regulatory environment, Paytm announced a shift toward a more conservative lending approach. The company plans to focus on higher-ticket personal and commercial loans targeted at lower-risk, high credit-worthy customers. This move is in line with the company’s commitment to maintaining a healthy loan portfolio.

Financial analysts have responded to Paytm’s strategic shift with mixed sentiments. Jefferies analysts noted the growing conservatism in the financial system, while Goldman Sachs downgraded Paytm from a buy to neutral. The latter firm also adjusted its revenue and EBITDA estimates for FY24 through FY26, anticipating a decline in disbursal growth.

Goldman Sachs highlighted the significance of lending for Paytm’s profitability, noting the company’s low growth visibility in the small-ticket lending vertical. The recalibration of the loan portfolio, especially reducing loans under ₹50,000, is expected to lead to a substantial drop in loan volume. Paytm anticipates a 40-50% decline in postpaid disbursals in the near term.

Despite the immediate challenges, the majority of brokerage firms, including Bank of America, JM Financial Services, and others, have maintained a ‘buy’ rating on Paytm. They express confidence in the company’s strategic moves, emphasising the potential of higher-ticket loans and collaborations with large banks and NBFCs. However, Goldman Sachs downgraded One 97 Communications stock to ‘neutral,’ citing concerns that higher ticket loans may not fully offset the reduction in smaller-ticket loans.

While the immediate market response has been challenging, the long-term impact will depend on how successfully Paytm navigates the changing regulatory environment and executes its shift towards higher-value loans and collaborations with established financial institutions.

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