Jefferies Temporarily Suspends Coverage on Paytm Amid Regulatory Turmoil

Jefferies, the international investment bank, has taken a temporary step back from covering Paytm, classifying its stock as 'not rated' until the regulatory issues surrounding the Fintech giant settle down. This move comes as Paytm faces scrutiny from regulatory authorities, impacting its market standing.

Despite the regulatory challenges, Paytm stocks have experienced a 5% surge for the second consecutive day, reaching Rs 358.35 apiece and hitting the upper circuit on Monday, February 19, 2024, according to BSE analytics.

Jefferies analysts Jayant Kharote and Prakhar Sharma mentioned, “We move to Not Rated (from underperform) until the news flow settles down.” The investment bank has not suspended coverage on Paytm but has temporarily halted the investment rating and price target for the Fintech stock.

Jefferies analysts elaborated on the current situation, stating, “Without a banking license, Paytm’s business model will now become similar to pure payment service providers.” They anticipate Paytm to focus on customer retention, dipping into its significant cash reserves of 85 billion rupees ($1 billion) for expenditures aimed at retaining users.

RBI's Regulatory Action Against Paytm Payments Bank

Last month, the Reserve Bank of India (RBI) issued an order instructing Paytm Payments Bank to halt credit transactions, deposits, and top-ups starting from February 29, 2024. This directive cited 'persistent non-compliances and continued material supervisory concerns in the bank.' The RBI later extended the deadline to March 15, 2024, offering some relief to Paytm Payments Bank.

The circular from RBI stated, “No further deposits or credit transactions or top-ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024."

Paytm responded to this regulatory action by announcing a partnership with Axis Bank last week. This collaboration involves hosting nodal accounts or escrow accounts as a replacement for Paytm Payments Bank. Analysts suggest that, without a banking license, Paytm’s business model may resemble that of pure payment service providers like PhonePe, GPay, Pine Labs, etc.