Paytm shares witnessed a sharp decline of 20% in early trading on February 1, plummeting to the lower circuit, following significant restrictions imposed by the Reserve Bank of India (RBI) on the company's lending operations. These restrictions include a ban on accepting new deposits and conducting credit transactions after February 29.

Opening at the lower circuit at Rs 609 per share, the fintech giant's stock experienced a substantial drop compared to the previous day's closing price of Rs 761 on the NSE. Year-to-date, the stock has incurred a 1% loss, while in 2023, it saw a notable decline of 27.45%. Mutual funds held a 5% stake in Paytm as of the December 2023 quarter, up from 2.79% in the preceding quarter.

The RBI's action was prompted by a validation report from external auditors, revealing persistent non-compliance and ongoing material supervisory concerns within Paytm Payments Bank. In response to the regulatory measures, Paytm promptly communicated its commitment to complying with RBI directives, including collaborative efforts to swiftly address concerns.

Acknowledging the potential impact, Paytm informed exchanges that, depending on the resolution's nature, the worst-case scenario could result in an annual EBITDA impact ranging from Rs 300-500 crore. Despite these challenges, the company expressed confidence in its ability to continue improving profitability.

Moreover, Paytm clarified to exchanges that its founder, Vijay Shekhar Sharma, has not taken any margin loans or pledged shares directly or indirectly owned by him. Sharma, currently Paytm's largest shareholder and Significant Beneficial Owner, acquired a 10% stake from AntFin in August 2023 through his wholly-owned overseas entity, Resilient Asset Management BV, elevating his holding to 19.42%.

In response to the regulatory developments, brokerage firm Jefferies downgraded Paytm from a 'buy' to 'underperform' and slashed the stock's price target by more than half to Rs 500. The downgrade reflects concerns about significant reputational risks for Paytm following the RBI's stringent measures. Jefferies' revised target price suggests a downside potential of over 34% for Paytm's stock.