Shares of India's One 97 Communications, known as Paytm, recovered from initial losses on Monday. Analysts indicated that the cancellation of its associate firm's payment bank license would have a minimal effect on the fintech company.
Paytm's stock had fallen significantly earlier in the day but recovered to trade only 1.5% lower by midday. The Reserve Bank of India (RBI) on Friday revoked the license of Paytm Payments Bank, citing concerns that the management's character was detrimental to depositors and public interest.
One 97 Communications holds a 49% stake in Paytm Payments Bank, with founder Vijay Shekhar Sharma holding the remaining 51%. A payment bank license allows for accepting small deposits and money transfers but prohibits lending.
Analysts at Emkay Capital stated, "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." They added, "While the tone of the order is severe, Paytm is legally ring-fenced."
The RBI had previously imposed business restrictions on Paytm Payments Bank in January 2024 due to non-compliance with regulations, including customer due diligence and fund usage.
BofA Global Research noted, "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."
One 97's board approved the winding up of the payments bank, expecting no adverse financial impact due to de-linked operations over the past two years. Paytm's investment in the banking unit had already been written down.