Paytm shares plummet after ED initiates FEMA probe; investors lose around Rs 27,000 crore in 11 days
Paytm faces market turmoil as its shares plummet amidst regulatory scrutiny, potential license revocation, and a significant loss in market value, prompting caution among investors and eroding customer and partner trust.
FollowShares of fintech giant One 97 Communications tumbled by over 5% on Thursday, hitting a new historic low of Rs 325.05 on the Bombay Stock Exchange. The decline follows the Directorate of Enforcement's (ED) interrogation of Paytm Payments Bank officials over suspected breaches of the Foreign Exchange Management Act (FEMA) by entities utilizing the bank's services.
As per reports from ET, Paytm has witnessed a staggering loss of approximately Rs 27,000 crore or 57% of its market value over the past 11 days since the Reserve Bank of India (RBI) imposed restrictions on the payments bank, which also serves as the platform for the Paytm wallet.
Also read: ED initiates FEMA probe against Paytm Payments Bank amid RBI curbs
One 97 Communications recently disclosed in a filing that it has been receiving notices and information requests from the ED regarding customers possibly involved with these entities. The company clarified that its affiliate, Paytm Payments Bank Limited, does not partake in outward foreign remittances.
As per reports, executives from the Enforcement Directorate (ED) have furnished the requested information and documents to the agency. The ED has directed them to furnish additional details by the following week. A senior government official, speaking on the condition of anonymity, mentioned that based on the information and documents provided by Paytm Payments Bank, there are no apparent violations of the Foreign Exchange Management Act (FEMA) at this stage.
Experts are advising retail investors to avoid investing in Paytm shares until regulatory issues are resolved. There are indications that the Reserve Bank of India (RBI) is contemplating the revocation of Paytm Payments Bank's license. Global brokerage firm Macquarie has issued a bearish outlook on Paytm, predicting that the stock could plummet to as low as Rs 275, marking the most pessimistic projection for Paytm.
In an ET report, Macquarie analyst Suresh Ganapathy explained that they have significantly revised down revenue estimates, anticipating a decline of 60-65% in both payment and distribution business revenues by FY25/26E. The process of transferring payment bank customers and associated merchant accounts to other banks will necessitate Know Your Customer (KYC) verification to be conducted anew, posing a formidable challenge within the RBI's deadline of February 29.
Investors who ventured to invest in Paytm during its downturn have encountered substantial losses. Sudip Bandyopadhyay from Inditrade Capital stressed that the ambiguity surrounding the payments bank's operations, triggered by the RBI's interventions, has diminished both customer and partner trust. Consequently, customers and partners are advocating for a transition to alternative options.
