Paytm Shares Drop 20% as Company Shifts Focus Away from Small Loans

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Three points you will get to know in this article:

  • Paytm’s decision to reduce focus on small-ticket loans led to a 20% drop in its stock price.
  • The company plans to expand its business to offer high-ticket personal and merchant loans.
  • Paytm faces potential impact from RBI’s tightened norms on unsecured lending, affecting its lending business.

The shares of One97 Communications Ltd, the parent company of leading fintech player Paytm, faced a 20% downward lock at INR 650.65 on Thursday (December 7). This downturn came in response to the company’s decision to shift its focus away from smaller loans, specifically those below INR 50,000, which primarily constitute its postpaid loan business.

Commencing the day with an 8% decrease at INR 744.95 per share on the BSE, the stock eventually triggered a 20% lower circuit, settling at INR 650.65. It’s noteworthy that Paytm’s shares concluded the trading session on Wednesday (December 6) at INR 813.3 on the BSE.

Paytm’s Announcement on Postpaid Loans and Expansion Plans

In a recent discussion with investors, Paytm assured that while the growth of its postpaid services may not reach the previous levels, the company remains committed to offering this product, albeit at a significantly reduced pace. The fintech giant expressed its intention to diversify by extending its services to include higher-value personal and merchant loans, specifically catering to customers with lower risk profiles and strong creditworthiness.

Changes in Postpaid Loan Operations and Lending Partners

The decision to shift focus came amid reports of Paytm temporarily pausing its postpaid loan operations due to increased caution among its non-banking financial company (NBFC) partners. This cautious approach follows the Reserve Bank of India’s recent tightening of regulations concerning unsecured lending. Notably, one of Paytm’s major lending collaborators, Aditya Birla Capital, opted to withdraw from the postpaid partnership.

Despite Paytm’s denial of the report and insistence that Aditya Birla Capital remains a partner, users accessing the postpaid loan section on the Paytm app are currently greeted with a message indicating maintenance. Paytm has clarified that the postpaid loan product is not being discontinued; however, it will now be accessible to a select group of users.

Impact of Changes on Paytm’s Lending Business 

In recent years, Paytm has notably intensified its emphasis on loan distribution, leading to robust growth in its fintech services.

In the second quarter of the fiscal year 2024, Paytm experienced a notable surge in its loan disbursals, reaching 1.32 crore loans totaling INR 16,211 crore. This marked a significant increase of 44% and 122% compared to the previous year, respectively. Notably, the postpaid loans segment consistently stands out as the primary contributor to Paytm’s lending business in terms of overall value.

Analysts’ View on Paytm’s Business and the RBI’s Norms

A recent research note from Bank of America highlighted potential challenges for Paytm’s business in the wake of the RBI’s tightening of norms for lenders offering unsecured loans. According to the study, Paytm’s Q2 financials revealed that 56% of its loan value originated from the buy now pay later (BNPL) segment, with 20% coming from merchant loans and the remaining 24% from personal loans. This regulatory shift may pose an impact on Paytm’s operations, as outlined in the research analysis.

Paytm’s decision to scale down its focus on small-ticket postpaid loans led to a 20% drop in its stock price. While the company plans to continue offering postpaid loans, it acknowledges a reduced growth trajectory in this segment. Paytm also aims to expand its business to focus on high-ticket personal and merchant loans, targeting lower-risk customers. Reports of halted postpaid loan operations due to cautious NBFC partners and the exit of a major lending partner have emerged, although Paytm denies discontinuation of the product. Despite strong growth in loan distribution, an uncertain impact looms following RBI’s tightened lending norms.

SA Team

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