Shares of One 97 Communications Ltd. continued. declined after the bank used by the company's popular Paytm mobile payment service was effectively shut down by banking regulators, prompting JPMorgan to recommend investors sell.
The Reserve Bank of India's action against PayTM Payments Bank Ltd., announced on Wednesday, includes disallowing further deposits, credit transactions or use of balances by its customers or banking services.
In addition, the contract accounts, or special intermediary accounts used by businesses, for One 97 and Paytm Payments Services Ltd will be terminated. As soon as possible, no later than February 29th.
Paytm boasts of being India's 'most popular' platform for money transfer, recharges and other online payments.
The RBI's actions come after an investigation found “ongoing non-compliance and persistent material supervisory concerns at the bank”.
One 97 stock 543396,
The value of shares fell by 36% over the past two days in Indian trading, closing on Friday at their lowest level in 15 months, after the announcement of the Reserve Bank of India’s measures. The stock is down 37.3% over the past six months, while the iShares MSCI India ETF INDA is up 14.7%.
One 97 stock fell after RBI took action against one of the banks used by Paytm.
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JPMorgan analyst Ankur Rudra downgraded the stock from Neutral to Underweight and cut the price target by 33% to INR 600.
Rudra's concerns are that the order “materially impacts” Paytm's payments business, which accounts for 59% of revenue.
“While we do not believe it represents the end of the road for Paytm, it materially impacts near-term growth and profitability, forces another pivot and necessitates restoration of the credibility of the robustness of the business,” Rudra wrote in a note released. For customers on February 1.
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One 97 said on Thursday that it is already working with various banks, not just PayTM Payments Bank, but will now “accelerate” plans to work further with other banks following the RBI order.
“Going forward, [the company] It will only work with other banks, not with Paytm Payments Bank Limited. “The next stage of OCL’s journey is to continue expanding its payments and financial services business, only through partnerships with other banks,” One 97 said in a statement.
JP Morgan's Rudra said it “must be proven” that Paytm can maintain payment margins while migrating its business to other banks.
“We expect this to dilute Paytm's consumer brand credibility, potentially leading to market share losses in segments that were dominated by Paytm in the past,” Rudra wrote.
