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Paytm Shares Plunge 20% Amid Regulatory Crackdown by RBI

Paytm's shares experienced another staggering 20% decline on Friday, triggering the lower circuit mechanism that temporarily halts trading, as the Indian financial services giant grapples with the repercussions of regulatory measures imposed by the central bank.

Within minutes of the market opening, Paytm plummeted to 487 Indian rupees, equivalent to $5.88, marking its lowest point in 55 weeks. This decline follows a 20% drop in Paytm shares observed on Thursday. With a current market capitalization of $3.73 billion, Paytm has witnessed a staggering $2.1 billion reduction in its market capitalization over the course of just two days.

The Reserve Bank of India (RBI) significantly expanded its restrictions on Paytm's Payments Bank this week, which handles transactions for the financial services conglomerate, prohibiting it from offering various banking services, including the acceptance of fresh deposits and credit transactions across its services. In response, Paytm announced plans to sever ties with its affiliate and explore partnerships with other banks.

While Paytm asserts that the RBI's directives may, at worst, result in a $60 million reduction in its annual EBITDA, the broader market interprets the situation differently.

During an analyst call on Thursday afternoon, Paytm's management expressed its intention to mitigate the losses over time, foreseeing a manageable impact on its UPI business. Although economic fundamentals are expected to remain largely unchanged, Morgan Stanley analysts anticipate a potential moderation in UPI incentive fees.

Market valuation poses another challenge for Paytm, which, at a $3.7 billion market cap, is valued at less than one-third of its private competitor, Walmart-backed PhonePe. Despite PhonePe generating less than half of Paytm's revenue, the latter has raised over $5 billion in private rounds and IPOs.

Analysts are grappling with the task of revising their price targets for Paytm stock. Morgan Stanley revised its price target for Paytm down to 555 Indian rupees from 690 on Thursday.

Furthermore, reports suggest that the Indian central bank may not have concluded its regulatory actions against Paytm, as there have been internal discussions regarding the possibility of revoking Paytm's payments bank license, as reported by TechCrunch on Thursday.

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