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Paytm Faces Regulatory Scrutiny: Indian Stock Exchanges Slash Trading Limits Amidst $2 Billion Market Value Plunge

3rd February, 2024| By Business Desk
Paytm
Paytm Banner | Credit: Flickr
  • India’s stock exchanges, BSE and NSE, have reduced the daily trading limits for Paytm shares from 20% to 10%, responding to a significant $2 billion loss in the company’s market value.
  • The market downturn is a consequence of a regulatory crackdown by the Reserve Bank of India (RBI) on Paytm’s banking unit, Paytm Payments Bank. The RBI has directed the bank to stop accepting fresh deposits and new top-ups on wallets from March due to concerns over money laundering and KYC compliance.
  • Paytm’s parent company, One97 Communications Ltd, witnessed a 40% drop in stock over two consecutive days, hitting the lowest permissible limit on the Bombay Stock Exchange (BSE) and resulting in a market capitalization decline to $3.7 billion.
  • While existing deposits and wallet funds can be used until the end of February, wallet top-ups and related transactions will cease unless there is a change in the RBI’s stance. The Paytm Payments Bank faces allegations of inadequate KYC compliance and potential misuse of multiple accounts linked to single PANs.
  • The regulatory actions have far-reaching consequences for Paytm’s operations, given its heavy reliance on banking services. Stakeholders are closely monitoring developments to understand the long-term impact on Paytm’s market standing and regulatory compliance.

India’s stock exchanges, namely the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), have recently implemented a substantial reduction in the daily trading limits for shares of the digital payments firm Paytm. The new limit of 10% represents a significant decrease from the prior cap of 20%. This adjustment follows a tumultuous period for Paytm, marked by a severe market downturn that saw the company’s market value plummet to $3.7 billion.

The catalyst for this financial downturn was a regulatory crackdown on Paytm’s banking unit, Paytm Payments Bank, by the Reserve Bank of India (RBI). The RBI took a decisive stance by instructing Paytm’s banking arm to cease the acceptance of fresh deposits and halt new top-ups on its popular wallets, starting from March. This regulatory intervention is rooted in concerns over potential money laundering activities and non-compliance with Know Your Customer (KYC) regulations.

The consequences of the RBI’s measures are expected to be far-reaching, given the integral role that Paytm’s banking services play in the operations of the country’s most popular digital payments app. The stock of One97 Communications Ltd, Paytm’s parent company, bore the brunt of this regulatory action, experiencing a staggering 40% decline over two consecutive days. On the BSE, the stock reached its lowest permissible limit of Rs 487.05, contributing to a substantial erosion of the company’s market capitalization.

The impact on Paytm’s customers is also significant. While existing deposits and wallet funds can be utilized until the end of February, the discontinuation of wallet top-ups and related transactions is imminent, barring any change in the RBI’s stance. The Paytm Payments Bank has faced allegations of maintaining numerous accounts without adhering to proper KYC compliance. Moreover, concerns have been raised regarding the linking of multiple accounts to single PANs, creating suspicions of potential misuse and money laundering activities.

In summary, the reduction in daily trading limits by the Indian stock exchanges underscores the severity of the challenges facing Paytm in the aftermath of the regulatory crackdown on its banking unit. The implications extend beyond the financial realm, impacting the operational dynamics of India’s leading digital payments app. As the situation continues to unfold, stakeholders will closely monitor developments to gauge the long-term ramifications on Paytm’s market standing and regulatory compliance.