Can delay PPBL’s plan to request conversion to SFB; TP reduced to Rs 1,285 from Rs 1,352 due to impact of relocation; ‘Buy’ maintained

RBI has instructed Paytm Payments Bank (PPBL), an employee of One 97 Communications (OCL or Paytm), to temporarily suspend the onboarding of new customers, via a letter dated March 11, 22. The embargo will have a negative effect until further notice. affect user sign-up for new PPBL wallets or savings/current accounts. Also, taking into account certain material oversight issues at PPBL, RBI’s guidance will remain an overhang until the concerns are properly addressed. PPBL is immediately taking steps, including the appointment of a reputable third-party auditor, to conduct a comprehensive audit of its IT systems and remains committed to working with the regulator to address their concerns. In this regard, however, we recall recent embargoes on a leading bank, which lasted 8-15 months.

We estimate that Paytm’s customer base would grow by 10% in FY23E and monthly transacting users would grow at a run rate of > 25%. The company will need to step up its efforts to increase engagement with its existing user base to offset the adverse effects of the embargo on new users. Taking into account moderation in new user onboarding and the negative impact on incremental payment earnings, we are revising our TP to Rs 1,285 (previously Rs 1,352). It may also delay PPBL’s plan to apply for conversion in a small financial bank (although it is eligible to apply from May 22). Keep ‘buy’.

RBI identifies certain material supervision problems: The RBI letter states that it has identified certain material supervision problems at PPBL. PPBL remains committed to working with regulators to address their concerns as quickly as possible, but believes the process will be time-consuming.

Embargo applies to new users signing up for PPBL wallets, savings or checking accounts: Due to the embargo, new users will not be able to sign up for new PPBL wallets or savings/viewing accounts until further notice. However, new users can log into the Paytm App and transact by: a) creating UPI handles and linking them to their bank accounts, or b) using third party payment instruments for transactions on the Paytm App. Existing PPBL customers can continue to use all banking and payment services without interruption. Existing users of Paytm UPI, Paytm Wallet, Paytm FASTag and bank accounts can continue to use these tools, including debit cards and internet banking, for payments. The RBI guideline also has no influence on the services that Paytm provides in collaboration with other financial service providers.

This post One 97 Communications Rating ‘Buy’; RBI guideline remains an overhang

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