Why did Paytm share price drop to Rs 684 on March 14?
Paytm has been going through a troublesome three-week period: first, Vijay Sharma was arrested and let go on bail. Then came the RBI ban. Then, the news of Vijay's arrest and bail surfaced. And then consequently, Paytm's share price dipped to its lowest yet.
Here is the sequence of events that began the downward spiral:
March 11, Friday: RBI directs Paytm to stop onboarding new customers. RBI also directs Paytm to appoint an IT audit firm to conduct a comprehensive System Audit of its IT system. Why?
Because RBI has observed certain ''material supervisory concerns'' in Paytm's operations. RBI will provide special permission to onboard new customers only after it reviews the system report given by IT Auditors.
Woah. This is so sudden.Usually @RBI doesn't reveal the true reason behind such bars on their press release, curious to know what happened exactly.Btw, PayTM PB was granted Scheduled Bank status by RBI as recent as December last year. pic.twitter.com/YpqvjXkKNU
— Anirudha Basak (@bankonbasak) March 11, 2022
March 12, Saturday: Paytm released some statements on Twitter.
Dear customers, we value your relationship with us. We are taking all steps to comply with the RBI directions. Our existing customers can continue to seamlessly use all our banking services.
— Paytm Payments Bank (@PaytmBank) March 12, 2022
A message for our customers - your accounts & deposits with Paytm Payments Bank remain fully functional and safe.Read full post:https://t.co/53OIffiMjI
— Paytm Payments Bank (@PaytmBank) March 12, 2022
March 13, Sunday: News of Paytm CEO, Vijay Sharma's arrest and subsequent release on bail comes to light. Sharma had rammed his Jaguar Land Rover into a DCP's vehicle on February 22, and was arrested by the Delhi Police under Sec 279 of the IPC for rash or negligent driving. Vijay had apparently hit the car and fled the scene, after which the DCP's driver lodged an FIR. Based on this FIR, the car was finally traced to Vijay Sharma.
March 14, Monday: Paytm shares opened on Monday at a price of Rs 684 (a dip of 13%).
WHAT IS THE EXACT IMPACT OF THE RBI BAN?
- Some advisors have mentioned that the ban on the 'Payments Bank' will not have a big impact on Paytm, since this division has already acquired a lot of customers in its database.
- Existing users who use Paytm wallet, Paytm UPI, FasTag,and bank accounts can continue to use Paytm services.
- New users can sign up on Paytm and create UPI handles by linking them to their bank accounts. They can also use third party instruments to conduct transactions using the app.
- New users cannot however sign up for wallets, create savings account or current accounts.
THE CONSEQUENCES:
1. The share market
After the latest RBI ban on new customer onboarding #Paytm stock hit a low of Rs 672. Wait for RBI IT audit and latest Macquarie report the stock l will hit a new low. pic.twitter.com/bru3ukIrgs
— Sadaf Sayeed ?? (@Sadafsayeed) March 14, 2022
When the share market closed on March 11, Friday at 3.30 pm, Paytm's share price was Rs 776.15. When the markets opened on Monday, March 14, Paytm's prices had gone down by 13% as the shares were priced at Rs 684.
Since its launch on January 3, 2022, Paytm's share prices have consistently gone down from Rs 1,339 to Rs 684 currently, and though it was one of India's biggest and most hyped IPOs, its performance has just riddled down. This ban has set doubts about Paytm's internal controls, especially that of onboarding new customers.
2. Future expectations on its share price
This has also led brokerage and advisory firms to reduce their share price targets and expectations for Paytm's share prices. Paytm wallets are a key payment instrument that brings money to Paytm and will affect this payment model.
3. Paytm's future plan
Paytm's Payment Division was also expected to convert to a Small Finance Bank, and the RBI ban is expected to push this move.
HAS PAYTM PLAYED BAD BOY IN THE PAST?
RBI had previously levied a fine of Rs 1 crore on Paytm (in October 2021) because they had submitted information which did not reflect its factual position while applying for its final authorisation certificate.
In June 2018, RBI had prohibited Paytm's payment unit from opening new bank accounts and wallets for similar supervisory concerns. But this was lifted by the end of 2018.
HAS THIS HAPPENED TO OTHER BANKS BEFORE?
In December 2020, RBI had directed HDFC Bank to temporarily halt all digital launches as well as new sourcing of credit card customers, following various outages by HDFC Bank. These restrictions were lifted after a 15-month period.
14 months later, @RBI fully lifts the ban on @HDFC_Bank pic.twitter.com/Dnat3mEfBM
— Akshata Kamath (@AkshIsPublished) March 14, 2022