A day after the digital payments company announced it will issue fewer sub-50,000-rupee (about $600) personal loans after the central bank’s tightening of regulations on consumer lending, India’s Paytm saw a 20% decline in early trade on Thursday. This news caused shares of the company to plunge 20% to the day’s low of Rs 650.45 on the NSE.
Since the company’s debut two years ago, its shares have experienced the largest intraday percentage decline.
The non-bank lender announced on Wednesday that it will provide lower-risk and highly credit-worthy clients with access to a wider range of expensive personal and business loans.
Analysts at Goldman Sachs downgraded the company to a “neutral” from a “buy,” cutting the price objective to 840 rupees from 1,250 rupees, and stated that Paytm’s ambitions to offer higher ticket loans would not entirely offset a scale back of smaller-priced loans.
According to analysts, Paytm’s profitability is mostly driven by its lending growth, which is expected to slow down. However, the company’s payments, commerce, and cloud momentum are expected to stay robust.
Goldman Sachs now expects Paytm’s net income to turn positive in fiscal year 2025-26, a year later than previously expected, owing to slow revenue growth.
According to corporate data, postpaid loans from Paytm made up approximately 56% of all loans during the July-September quarter.
According to a Reuters story that quoted Paytm’s president and chief operating officer, Bhavesh Gupta, on an analyst call, the business is being “ultra-conservative” in this area.
This follows the Reserve Bank of India’s (RBI) recent increase in the capital requirements for banks and non-bank lenders to cover potential loan defaults when granting personal loans.
Following a spike in these small-ticket loans, especially those for less than 50,000 rupees, and a rise in delinquencies, the RBI tightened its regulations.
“On the back of recent macro development and regulatory guidance, in consultation with our lending partners, we have decided to reduce less than Rs 50,000 loan distribution,” Gupta stated.
In example, loans under 50,000 rupees make up roughly 38% of all loans on Paytm, according to financial expert Rahul Jain of Dolat Capital.
“We expect a negative impact of about 15% quarter-on-quarter on the (total) value of loans distributed by Paytm … but revenue impact should be much less, at around 5% QoQ,” he stated.
