Paytm Shares Locked In Upper Circuit For 2nd Day On RBI Deadline Extension, Axis Bank Partnership

One 97 Communications, the parent company of Paytm, witnessed a 5% surge for the second consecutive session, reaching the upper circuit on Monday, February 19. The boost came on the back of a strategic partnership with Axis Bank for merchant payments settlement and the Reserve Bank of India's (RBI) clarifications on the continuation of Paytm services beyond March 15.

At the opening bell, Paytm's stock soared to Rs 358.55 per share on the Bombay Stock Exchange, hitting the upper 5% price band. This rally was further fueled by a recent report from brokerage firm Bernstein, which assigned an 'Outperform' rating to Paytm, projecting a potential 76% upside with a target price of Rs 600 per share.

The RBI's announcement on Friday alleviated concerns surrounding the future of Paytm's QR codes, Soundbox, and Card Machines. The central bank clarified that these merchant payment devices would continue operating seamlessly beyond March 15, 2024, providing a crucial positive for Paytm.

Bernstein's report highlighted key aspects of the RBI's clarification, emphasizing that merchants could still use Paytm's services if linked to a third-party bank, not Paytm Payments Bank Ltd (PPBL). Analysts at Bernstein, including Pranav Gundlapalle, Ishan Mittal, and Dhruv Luthra, see this as a "major positive," citing benefits associated with non-PPBL bank linkage.

Despite immediate challenges, the analysts express confidence in Paytm's ability to navigate regulatory adjustments successfully. The extension of the cutoff date to March 15 is deemed critical, providing Paytm with additional time to implement necessary changes for a smooth transition.

Bernstein's report underscores the importance of strategic decision-making in response to regulatory changes, positioning Paytm favourably for future growth. The analysts applaud the RBI's foresight in allowing Paytm to link its merchant operations to non-PPBL banks, enhancing operational flexibility.

In response to these developments, Paytm clarified in a BSE filing that the partnership with Axis Bank aimed to replace the nodal account previously used with Paytm Payments Bank. Paytm Payments Bank, a wholly-owned subsidiary, has been utilizing Axis Bank services since its inception.

Meanwhile, Paytm Payments Bank received an extension on various directives from the RBI, with a notable change being the cessation of banking services after March 15, 2024. Customers will no longer be able to make deposits or top-ups into their accounts, prepaid instruments, wallets, FASTags, or National Common Mobility Cards (NCMC).

Exceptions to this rule include interest, cashbacks, sweep-ins from partner banks, or refunds, which may be credited at any time. However, customers retain the freedom to withdraw or utilize their balances without restrictions.

The RBI's directive extends beyond the initially set deadline of February 29. Paytm Payments Bank is now prohibited from offering services such as fund transfers (including AEPS, IMPS, and UPI), Bharat Bill Payment Operating Unit (BBPOU), and the Unified Payments Interface (UPI) facility.

The Nodal Accounts of One97 Communications and Paytm Payments Services, maintained by PPBL, are to be terminated by February 29, as per previous instructions. Paytm Payments Bank will facilitate the seamless withdrawal of customer deposits parked with partner banks under the automatic 'sweep-in sweep-out' facility, as mandated by the RBI.

These regulatory adjustments pose challenges for Paytm, but the company remains optimistic about its ability to adapt within the extended timeframe. The partnership with Axis Bank and the RBI's clarifications provide a ray of hope, instilling confidence among investors and stakeholders in Paytm's future prospects.