Paytm Shares Hit 52-Week High After RBI Nod for Payment Aggregator Licence

Shares of One97 Communications, the parent company of Paytm, climbed 6% to a 52-week high on August 13 after the Reserve Bank of India (RBI) granted in-principle authorisation to its subsidiary, Paytm Payments Services (PPSL), to operate as an online payment aggregator.

However, the approval comes with conditions. PPSL must adhere to the Guidelines on Regulation of Payment Aggregators and Payment Gateways, along with clarifications issued in March 2021. The authorisation applies only to payment aggregator operations as defined in the guidelines, meaning that transactions outside this scope such as merchant pay-outs cannot be routed through escrow accounts designated for PA activities.

As part of the approval process, the RBI has directed PPSL to carry out a comprehensive system audit, including a cybersecurity review. The audit report must be submitted within six months. Failure to meet the deadline will cause the in-principle authorisation to lapse automatically. The RBI has further advised PPSL to seek prior regulatory approval for any change in shareholding or ownership.

In a major relief for the company, the RBI has withdrawn the merchant onboarding restrictions placed on PPSL since November 2022, allowing it to once again bring new merchants onto its platform. At the time of the restrictions, Paytm had stated the move would have no material impact on its business, as it only applied to onboarding new online merchants.

The development follows a series of changes at the company, including the exit of Chinese shareholder Antfin, which sold its remaining stake via block deals, joining Berkshire Hathaway in exiting at a loss.

Brokerages have responded positively to the development. Citi has maintained a buy rating on Paytm with a price target of ₹1,215, calling the licence win a sentiment booster that removes a significant regulatory overhang. Bernstein holds an outperform rating with a target of ₹1,100, stating that while the immediate impact may be limited, the move allows Paytm to tap into a broader base of smaller merchants, which tend to generate higher margins than larger clients.

Paytm recently reported its first-ever quarterly net profit since listing in Q1, marking a turnaround after a challenging period marred by regulatory scrutiny and delays in achieving profitability.