Paytm stock takes a big hit as it pulls back on small loans

livemint.com:

₹50,000). These are primarily postpaid loans or buy-now-pay-later products, which comprised 56% of total loan disbursements during the September quarter (Q2 FY24) in terms of value. Postpaid loan disbursement is expected to halve in the coming months.

Investors were visibly upset, dragging the stock down almost 19% on Thursday. Paytm’s move follows the Reserve Bank of India’s (RBI) decision to increase risk weights in unsecured retail lending. News reports have also said that ZestMoney, a fintech lending startup focussed on buy-now-pay-later products, is likely to be shut down as lending partners have been ditching the company.

During a call with analysts Paytm executives said the company's decision to reduce its focus on postpaid loans is aimed at avoiding asset-quality issues. In any case, the expected credit loss in Paytm’s postpaid lending business has improved to 0.65%-0.85% in Q2 from 1.1%-1.3% a year ago. To offset the impact from reduction in postpaid loans, Paytm aims to scale up higher ticket personal and merchant loans, where the risk is lower.

The company noted good demand for loans of ₹3 lakh to ₹7 lakh. These loans are likely to be given to well-tested and premium customers. Shivaji Thapliyal, head of research for institutional equities at Yes Securities, noted that Paytm’s commentary calls into question the broad thesis that the company is quickly turning its focus from payments to loan distribution.

“The key question to ask is what proportion of its overall customer base Paytm will ultimately be able to convert into loan customers in the long-run," Thapliyal added. However, there is a silver lining. According to Paytm’s management, postpaid products fetch relatively low margins, and this means the impact