Paytm CEO, CFO In SEBI Crosshairs Over Timing Of 2023 Loan Announcement

The Securities and Exchange Board of India (SEBI) has issued show cause notices to Paytm CEO Vijay Shekhar Sharma, CFO Madhur Deora and other key management personnel over the timing of the company's December 6, 2023 announcement regarding curbs on small personal loans.

Paytm said late Wednesday that its top management had received the notices and that the company does not expect any financial impact from the regulatory action. The executives have been given 14 days to respond.

What Happened In December 2023?

On December 6, 2023, Paytm announced that it would reduce the issuance of personal loans below ₹50,000. The announcement came around three weeks after the Reserve Bank of India (RBI) tightened rules governing consumer credit.

The RBI had raised risk weights on unsecured consumer loans extended by banks and non-banking financial companies (NBFCs), citing concerns over the rapid growth of such lending and the potential buildup of systemic risks.

Paytm's announcement triggered a sharp reaction in its shares. The stock had initially fallen 1.9% after the RBI's November 2023 regulatory measures but recovered over the following days.

However, Paytm shares subsequently declined about 12% in the eight trading sessions leading up to the December 6 announcement.

The stock then plunged 20% on the trading day immediately after the company disclosed the changes to its small personal-loan business.

SEBI's inquiry is focused on whether Paytm's management disclosed the information about the reduction in loan issuance at the appropriate time and whether the timing of the disclosure complied with securities-market regulations.

What Could Happen Next?

A show cause notice is not a finding of wrongdoing. It gives the recipients an opportunity to respond to the regulator's allegations before SEBI determines whether any violation occurred.

If SEBI ultimately finds that securities laws or disclosure requirements were breached, the executives could face monetary penalties or other regulatory action.

Paytm has said it does not currently expect the proceedings to have any financial impact on the company.