Paytm’s Stock Drops as India Intends to Limit Small Personal Loans
Published on: December 7, 2023.
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India’s leading digital payments firm, Paytm, experienced a significant drop in its share price, falling by as much as 20%, following new regulations from the Reserve Bank of India (RBI) on consumer lending. Paytm’s decision to reduce the issuance of low-value personal loans is a direct response to the tightened rules.
The company announced its intention to slow down on sub-50,000-rupee loans, approximately $600, while expanding its portfolio of higher-value personal and commercial loans. However, Goldman Sachs analysts believe that the increase in high-value loans will not completely compensate for the reduction in smaller loans. As a result, they downgraded their rating for One 97 Communications, the parent company of Paytm, from ‘buy’ to ‘neutral’, with a revised target price of 840 rupees, down from 1,250 rupees.
Goldman Sachs also projected that Paytm’s net income would turn positive in fiscal year 2025-26, which is one year later than previously anticipated due to the deceleration in revenue growth.
Despite the decrease in loan issuance, Paytm expects minimal impact on revenue growth, even though there is a projected 40%-50% decline in the volume of loans issued through their post-paid product.
Jefferies, however, believes that the reduction in loan disbursal is more pronounced than initially estimated. Consequently, they adjusted their revenue estimate for the fiscal years 2024-2026 by 3%-10% and revised their target price to 1,050 rupees from 1,300 rupees.
Post-paid loans, which enable customers to repay their purchases in installments without interest, constituted over half of Paytm’s total loans in the period of July-September.
As of now, Paytm’s shares have fallen by 18% to 667.90 rupees. However, the stock has still managed to achieve a 25% increase year-to-date, outperforming the Nifty financial services index, which has risen by 10.7%.
To mitigate the impact of the regulatory changes, Paytm plans to add one bank and two non-bank finance companies (NBFCs) to its roster of lending partners. Currently, the company has seven NBFC partners.
Aditya Birla Capital, one of Paytm’s partners, witnessed a 7% dip in its stock price.
IIFL Securities analysts noted that there are signs of a second-order impact resulting from the RBI’s regulatory tightening. This impact is manifesting as a slowdown in growth and an increase in delinquencies in certain segments of unsecured consumer loans.
Overall, Paytm’s strategic shift indicates its commitment to adapt to the changing regulatory landscape and maintain steady growth in the digital payments industry.
**Source:** [Zawya](https://www.zawya.com)
