Paytm Stock Drops 20% After Downgrade for Scaling Back Loan Sizes

Paytm’s stock hit a two-year low Thursday (Dec. 7) after it changed its small-ticket loan policy and brokers downgraded its stock.

The Indian FinTech had announced earlier in the week that it would make fewer small loans — those below 50,000 rupees, or $600 — in light of the Reserve Bank of India’s (RBI) new rules designed to cut down on riskier lending to consumers.

Instead, Paytm says it plans to expand its loan distribution business by offering a greater number of higher-ticket loans to consumers and merchants in the above-50,000 rupee category.

That move, a report by Bloomberg News said, caused at least five brokers – JPMorgan, Goldman Sachs and Citi among them — to downgrade Paytm, with the company’s stock falling 20% and wiping out more than $1 billion in market value.

The RBI, India’s central bank and banking regulator, tightened its lending rules last month after seeing a wave of smaller loans and a jump in delinquencies.

Paytm reported in October that its loan business had surged by 64%.

And as noted here in August, India’s so-called “shadow banks” — or non-bank lenders — had been enjoying a boom period earlier in the year.

For example, data from the country’s central bank — cited in a report by the Financial Times — showed personal loans issued by traditional banks climbing 19.2% between May 2022 and May of this year.

But for non-bank lenders, lending for those consumers increased by 31.3% year-over-year, while lending by banks to shadow banks jumped 27.6%.

Paytm’s change in light of new RBI regulations comes two months after the company ran afoul of the regulator.

In October, the RBI fined Paytm Payments Bank 53.9 million rupees ($647,762.58) for non-compliance, including Know Your Customer (KYC) regulations.

The regulator said the penalty resulted from Paytm Payments Bank’s failure to identify the beneficial owners of entities using its payout services, along with its failure to monitor payout transactions and carry out risk profiling of these entities.

Beyond the non-compliance issues, the RBI also charged that Paytm Payments Bank had breached the regulatory ceiling of end-of-the-day balance in certain customer advance accounts that were fueling payout services.