According to Yahoo News, Paytm's shares experienced their steepest drop in over two years, falling 18.7% and erasing more than $1 billion in market value. The decline comes after the Indian fintech company announced it would reduce the disbursal of loans below 50,000 rupees ($600) in response to the Reserve Bank of India's (RBI) stricter rules aimed at curbing risky consumer lending. This decision led to rating downgrades from at least five brokers, including Goldman Sachs Group Inc., JPMorgan Chase & Co., and Citigroup Inc.
The RBI's new rules, introduced in November, require lenders to increase provisions against personal loans and credit card borrowings, as these debts are unsecured. This has put pressure on Indian banks' shares, as the central bank's move is expected to negatively impact consumer spending, a crucial driver of India's economy, and subsequently, lenders' profits. The increase in risk-weight of loans taken from banks may also push non-bank lenders to seek alternative sources of credit.
Citigroup analysts, including Vijit Jain, noted that the slowdown in smaller loans, a key channel for acquiring customers, could affect the medium-term growth potential of Paytm's other businesses. The brokerage firm downgraded the stock to neutral from buy and reduced its estimates for Paytm's operating profit by about 20% for fiscal years 2024 and 2025. Nearly three-quarters of Paytm's Buy Now Pay Later loans in the second quarter were in the sub-50,000 rupees category, according to Citigroup. Indian shadow lenders that partner with Paytm and others for smaller loans also experienced declines, with Aditya Birla Capital Ltd. falling 3.7% and Bajaj Finance Ltd. sliding more than 1%.