Paytm shares surge 10% after government approval for payments arm investment

Paytm share sugre: Beleaguered fintech major Paytm's parent One97 Communications witnessed a significant boost in its share price, surging 10 per cent to an intraday high of Rs 509.05 apiece on the NSE, following news of government approval for a crucial investment in its subsidiary, Paytm Payment Services. This approval, confirmed by Financial Services Secretary Vivek Joshi, paves the way for the fintech firm to resume normal operations in one of its most critical business units, news agency Reuters reported.

The green light from the government, which had been delayed for months due to Paytm's links to China, removes the primary hurdle that was impeding the subsidiary's functionality. Paytm Payment Services is a substantial component of the company's operations, contributing to a quarter of its consolidated revenue for the financial year ending in March 2023.

Earlier this month, Reuters reported that a government panel overseeing investments linked to China had given a preliminary nod for Paytm's Rs 50 crore investment. This panel had previously withheld approval due to concerns about the 9.88 per cent stake in Paytm held by China's Ant Group, reflecting India's intensified scrutiny of Chinese businesses following the 2020 border clash.

With the investment now approved, Paytm can approach the Reserve Bank of India (RBI) to seek a payment aggregator license, a process that the central bank will evaluate. Financial Services Secretary Vivek Joshi confirmed that the company could proceed with this application.

Impact on Paytm's business operations

The formal approval is a crucial development for Paytm, allowing it to avoid the fate of another of its units, Paytm Payments Bank, which was wound down earlier this year by the Reserve Bank of India (RBI) due to persistent compliance issues. This previous setback had triggered a significant decline in Paytm's stock.

Without the current approval, Paytm would have faced the prospect of winding down its payment services business, which had been barred from onboarding new customers since March 2023.

Peter Schaffrik, global macro strategist at RBC Capital Markets, noted, “This approval removes a significant overhang on Paytm's stock, and the market's reaction indicates strong investor relief and renewed optimism for the company's future prospects.”