The article reports that Paytm shares fell 20% after the company said it will reduce issuing personal loans under Rs 50,000, following RBI’s tightening of rules around such lending. Paytm says it will now focus more on higher value personal and commercial loans instead.
Analysis for investors:
Paytm is a leading Indian fintech company that offers services like digital payments, banking, lending etc. RBI recently introduced stricter norms around issuing small ticket personal loans under Rs 50,000, requiring lenders to set aside more capital to cover potential losses. This has led Paytm to cut back significantly on such lending and shift focus to higher value loans which likely have lower defaults.
This indicates some key trends – a slowdown in retail credit growth which can negatively impact firms focused on this segment, including fintech lenders like Paytm. However, the shift to higher ticket size lending is strategically sound as it carries lower risk. Paytm may be able to sustain loan growth through this higher value lending. The near term impact is a sharp drop in loan volumes but minimal revenue impact expected as personal loans under Rs 50,000 formed a relatively small part of revenues.
Impact on Retail Investors:
For retail investors in Paytm, this news brings short term pain but may be positive long term. Share price may remain subdued in the near term as investors factor in slower loan growth. However, the focus on quality lending is strategically sound. Paytm has built tremendous scale in payments and has ambitious plans around lending. Its strong brand and digital focus make it well placed to be a leading digital lender for both consumers and small businesses. Despite some headwinds, long term growth prospects remain intact. Valuations also now appear attractive after the sharp correction.
Impact on Industries:
Fintech lending industry will see moderation in growth, especially companies focused on small ticket personal loans. Players may have to raise more capital to meet RBI norms.
Slowdown in overall retail credit growth to impact lenders as well as consumer facing sectors.
Higher value lending may see growth, benefitting banks and NBFCs in this segment.
Long Term Benefits & Negatives:
Focus on quality lending will reduce overall risk and defaults in the financial system
Well capitalized lenders will gain market share
Can reduce credit access for lower income segments
Will moderate growth for new age fintech lending firms
Short Term Benefits & Negatives:
Reduced reckless lending and overheating in the retail segment Negatives:
Sharp slowdown in credit growth, especially small ticket loans
Fintech lenders will see numbers drop significantly
Consumer sectors may suffer from lower spending growth
Companies that Gain:
Bajaj Finance, HDFC Bank, ICICI Bank – Well capitalized lenders focused on higher ticket lending
AU Small Finance Bank – Small finance bank serving underbanked segments
Companies that Lose:
Fintech lenders like Paytm, LoanTap, LazyPay etc. which have significant exposure to small ticket loans
Retail focused companies – Titan, Asian Paints etc. may see moderate impact on demand
The changes introduced by RBI aim to reduce systemic risk, but have a short term negative impact especially on the fintech lending space. For Paytm investors specifically, the long term outlook remains positive despite this transitionary slowdown as the company builds a sustainable high quality loan book leveraging its digital capabilities and brand strength.
Kumar, Shivendra. “Paytm Shares Tank 20% after Company Looks to Curtail Low-Value Personal Loans.” The Economic Times, 7 Dec. 2023,