Paytm shares rally 5%; up 13.8% in a week; here’s why

Shares of One 97 Communications Ltd have seen some relief from consistent free-fall as the scrip rallied 5% to hit an intra-day high of ₹427.95 on the BSE today after the Reserve Bank of India (RBI) asked NPCI to examine Paytm's request for continued UPI transactions.

The recent rally comes amid hopes of some relief to the troubled company as it jostles to find ways to address the RBI's concerns and stop its customers from joining rival companies.

The scrip opened a gap up at ₹416.90 today and surged to the day's high at ₹427.95, up 5%, on the BSE. With this rally, the Paytm shares have surged 13.78% in the past week alone.

There are a couple of developments that fuelled the recent rally. U.S.-based financial major Morgan Stanley, in its latest report on Paytm, gave an "equal weight" to the stock, setting the price target at ₹555 apiece. It said the regulatory clarity is awaited from both the RBI and NPCI, and picture should be clearer as Paytm Bank's operations move to other banks. It also opined that if NPCI allows continued UPI transactions, it will not hurt Paytm's UPI operations in the medium-term.

The RBI on Friday said that it had taken certain additional "necessary" steps to ensure seamless digital payments by UPI customers using '@paytm' handle operated by the Paytm Payments Bank.

These measures will minimise concentration risk in the UPI system by having multiple payment app providers, it said.

Paytm Payments Bank was barred from accepting further credits into its customer accounts and wallets after March 15, 2024. Paytm Payments Bank is 51% owned by Paytm CEO Vijay Shekhar Sharma while the remaining 49% is owned by One 97 Communications.

The central bank advised the National Payments Corporation of India (NPCI) to examine the request of Paytm's parent to become a “third-party application provider (TPAP)” for the UPI channel for continued UPI operations of the Paytm app.

"It has been further advised that in the event of NPCI granting TPAP status to OCL, it may be stipulated that ‘@paytm’ handles are to be migrated in a seamless manner from Paytm Payments Bank to a set of newly identified banks to avoid any disruption," the central bank said, adding that no new users are to be added by the said TPAP until all the existing users are migrated satisfactorily to a new handle.

The RBI said for seamless migration of ‘@paytm’ handle to other banks, NPCI might facilitate certification of 4-5 banks as Payment Service Provider (PSP) Banks with demonstrated capabilities to process high-volume UPI transactions.

Additionally, Paytm parent One 97 Communications said the company has partnered with Axis Bank for Escrow accounts to continue seamless merchant settlements. The arrangement is expected to replace the nodal account that One97 was using with Paytm Payments Bank.

Notably, Paytm shares have seen a significant fall of over 50% in its share price in the past month since the RBI's directions against Paytm Bank. The stock has seen a 33.74% dip in the year 2024 alone.