Shares of Paytm plummeted 5% to hit its all-time low of Rs 317.4 in Wednesday\’s trade as Aditya Birla Finance, one of the key lending partners for the company, is learnt to have invoked loan guarantees which the fintech firm had provided to the lender in lieu of repayment defaults from customers, people in the know of the matter told ET.
Others like Piramal Finance and Clix Capital have also pulled the plug on their partnerships with Noida-headquartered Paytm, signalling the stress in the company\’s lending business in the aftermath of the central bank\’s ban on Paytm Payments Bank and an overall slowdown in unsecured consumer lending, said these people.
“Aditya Birla Finance could have possibly invoked a large sum amounting to hundreds of crores of rupees … This will have a severe impact on the company’s financials amid a wider clampdown by the central bank on the sector,” said one of the people familiar with the matter.
Also Read: IRB Infra shares rise over 4% after Q4 results. Should you buy or sell?In the December quarter, Paytm had put its expected credit loss for personal loans at 4.5-5.0%.
Paytm offers consumer and merchant loans as well as buy-now-pay-later short-term credit to users. The fintech, over the last year, has clocked fast-paced growth in its disbursals. In the December quarter last year, it disbursed Rs 15,535 crore of loans, up 56% from Rs 9,958 crore a year earlier. In terms of revenue, Paytm generated Rs 607 crore from its financial services business in the quarter, accounting for 21% of its total operational revenue of Rs 2,850 crore.
As per the Reserve Bank of India\’s digital lending rules, unregulated entities like Paytm are allowed to offer around 5% DLG (default loss guarantee) cover to the non-banking finance companies (NBFCs) they partner with.
Paytm had a similar protection for Aditya Birla Finance, the person quoted earlier said. In the case of One 97, these guarantees are structured through collection commitments for loans sourced by the platform which are not repaid on time. \”ABFL is deducting funds from pay-outs (of commission to Paytm),\” said another person privy to the details.
Responding to ET’s queries, a Paytm spokesperson said: \”We categorically reject all speculations concerning our lending business. We have resumed lending services with a select few partners and are actively engaged in discussions to expand with the remaining lending partners. Paytm does not provide a First Loss Default Guarantee (FLDG) to lenders; our role is strictly that of a distributor.\”
Year-to-date, the stock has declined by nearly 51%, with a staggering 65% plunge over the last six months.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
