Shares of Indian digital payments firm Paytm slumped their daily limit for a third day in a row on Monday and have shed $2.5 billion in market value since a regulatory crackdown last week cast doubt over its business.
The Reserve Bank of India (RBI) told Paytm Payments Bank on Wednesday of last week to stop accepting fresh deposits in its accounts or its popular digital wallets from March.
The action against Paytm Payments Bank followed years of non-compliance with central bank rules, including on customer due diligence, use of funds and technology infrastructure, a source familiar with the situation said. The RBI did not respond to requests for comment on the matter.
"Paytm's entire brand is hit, credit operations are ceased and there is a potential collapse of its earnings stream which will take a while to get back on track," said Vinit Bolinjkar, head of research at Ventura Securities.
"With the regulatory crackdown, news flow surrounding investigative agencies, there is no visibility to the fortune of the stock and we will need a white knight to save its fortunes."
Sources familiar with the matter said the RBI had found hundreds of thousands of accounts at Paytm Payments Bank, one of India's most popular digital payment apps, that were created without proper identification. The RBI is concerned that some of the accounts could have been used for money laundering, according to the sources.
The central bank has passed the information on to the Enforcement Directorate, India's financial crime-fighting agency, they added.
One 97 Communications, also known as Paytm and the parent of Paytm Payments Bank, denied any connection to money laundering and said the companies have never been probed by the Enforcement Directorate.
India's Revenue Secretary Sanjay Malhotra told Reuters on Saturday that the directorate would probe Paytm Payments Bank if any fresh charges are made regarding improper siphoning of funds.
Paytm's stock fell its 10% daily limit on the Bombay Stock Exchange on Monday to a record low of 438.35 rupees, after falling by a 20% daily limit the previous two sessions. The stock was also near a record low on India's National Stock Exchange.
India's stock exchanges narrowed Paytm's daily trading limit to 10% on Monday from 20%, after the stock crashed on Thursday and Friday.
Digital payments
Two sources directly familiar with the matter said last week that Paytm Payments Bank's digital wallet business may not be able to operate after Feb. 29 unless the RBI, India's central bank, approves a transfer of its licence to parent group One 97 Communications.
The RBI's regulatory clampdown could be a precursor to its licence being cancelled, a source familiar with the matter said.
The company powers most features of the popular digital payments app, which competes with the likes of Walmart's PhonePe and Google. Paytm has 330 million digital wallet accounts, which many people in India use to transfer funds, pay bills and make retail payments.
State Bank of India SBI.NS (SBI), the country's largest lender, said on Saturday that it was extending services to merchants and retailers through its payments subsidiary, SBI Payments Services, in response to the uncertainty around Paytm.
"We are ready for them," SBI Chairman Dinesh Kumar Khara said. "We are quite open in terms of coming to the support of the merchant community and we will be more than happy to provide them PoS machines."
The Hindu Business Line newspaper reported on Monday that Paytm is in exploratory talks with HDFC Bank and Jio Financial Services to sell the digital wallets business housed under Paytm Payments Bank.
Paytm said it does not comment on market speculation while HDFC Bank and Jio Financial did not immediately respond to requests for comment on the report.
Shares of Jio Financial rose 14.2% on Monday following the report.
