Postpaid loans comprised around 55% of the amount disbursed by Paytm as of Q2 of FY24.
Key Highlights
- The company plans to reduce its exposure to small-ticket loans of less than INR 50,000.
- It is planning to focus more on merchant loans of higher value ranging between INR 3-7 lakhs.
- Paytm shares fell by 20% on Thursday, hitting the lower circuit.
After reporting its first-ever operating profit earlier this year, Paytm is looking at making changes in its loan distribution business.
In a regulatory filing to the BSE and NSE, Paytm has made public its plan to shift from small-ticket loans to merchant loans of higher value.
The company has decided to reduce its share of loans of value less than INR 50,000 after consultation with its lending partners.
The move comes after the RBI changed the regulatory norms for unsecured loans in November this year. The regulator had increased the risk weightage requirements on consumer credit by 25 basis points for both banks and NBFCs.
The company now eyes the merchant loans market, with a value ranging between INR 3 to 7 lakhs, which remains unaffected by the regulatory changes.
Postpaid loans, disbursed through the platform’s ‘buy now, pay later’ feature comprised around 55% of the total loans disbursed as of Q2’FY24.
For personal loans and merchant loans, the corresponding share was 25% and 20% respectively.
As its strategy for loan distribution changes, the company is in the process of integrating a large bank and 2 large NBFCs with its platform which is expected to be completed by Q1 FY-2025.
Effects of change in Paytm’s Loan Distribution Model
After the company announced its plans to cut down on small-ticket loans, various investment firms downgraded their ratings on the shares of Paytm.
Goldman Sachs downgraded its outlook on Paytm shares from ‘buy’ to ‘neutral’ as it cut down its target Paytm share price.
Similarly, JM Financial also cut down its target of Paytm share price to INR 1120.
Due to the developments, the shares of Paytm plunged by 20% on Thursday, hitting the lower circuit.
As brokerages downgrade their ratings on its shares, the company believes that the changed strategy would allow it to focus on low-risk and high-creditworthy borrowers, particularly businesses seeking merchant loans.
Disclaimer: The above information is for educational purposes only and not a financial advice. Investors must consult their financial advisors or conduct their own research before investing.
