Stock prices for One 97 Communications, the Indian company behind popular digital payment platform Paytm, recovered Monday afternoon following an initial steep decline after regulators stripped its banking partner of its operating license.
The shares dropped as much as 8.4% during early trading in the company’s steepest single-day decline in over three months, but rallied back to close just 1.5% down by midday as investor confidence returned.
India’s central banking authority announced Friday it was revoking the operating license for Paytm Payments Bank, stating that “the general character of the management of the bank is prejudicial to the interest of depositors as also the public interest.”
One 97 Communications owns a 49% share in the payments bank, while Paytm founder Vijay Shekhar Sharma controls the remaining 51% stake.
Payment banking licenses permit companies to accept small customer deposits and process money transfers, though they cannot issue loans like traditional banks.
Financial experts at Emkay Capital downplayed concerns about the license revocation’s impact on Paytm’s main business operations. “We do not see any financial or operational impact on Paytm, as all commercial agreements with PPBL were terminated and the equity investment was fully impaired by March 2024,” the analysts stated.
“While the tone of the order is severe, Paytm is legally ring-fenced,” they added.
Banking regulators had previously restricted Paytm Payments Bank’s activities in January 2024, prohibiting the institution from taking new deposits after citing violations of compliance standards related to customer verification procedures, fund management, and technology systems.
The banking unit’s operations have significantly decreased since those restrictions took effect.
However, analysts at BofA Global Research cautioned about potential future complications. “While the current business of Paytm isn’t impacted by the ban, we see risks that in the future it may become harder for Paytm to obtain any potential licenses from RBI,” they noted.
On Saturday, One 97’s board of directors voted to dissolve the payments bank entirely, stating they anticipate no negative financial consequences from the license cancellation since the two companies have operated independently for the past two years.
The parent company has already written off its investment in the banking subsidiary.
