Paytm's Personal Loans To Face Impact Of RBI's Stricter Consumer Credit Rules

BofA Securities Inc. anticipates that Paytm will face repercussions from the recent decision by the Reserve Bank of India (RBI) to increase risk weights on unsecured loans, particularly affecting personal loans. According to Paytm's Q2 financials, a significant portion of the loan value, 56 per cent, comes from the 'buy now, pay later' segment, while 24 per cent is from personal loans, and 20 per cent is from merchant loans.

The impact is expected to be minimal on the 'buy now, pay later' and merchant loan segments. The former, being a short-term product, may not be significantly impacted by a 5-10 basis points increase. Additionally, merchant loans fall under priority sector lending, making them less susceptible to the new regulations. However, personal loans are likely to become more expensive by at least 50 basis points, prompting Paytm and its NBFC partners to pass these costs on to consumers.

BofA Securities notes that Paytm has been proactively slowing down its personal loan growth over the last few quarters, expecting a 30 per cent growth rate. Despite the challenges, the brokerage believes the overall impact on Paytm will be lower than 5 per cent on the estimated consolidated Ebitda for FY25. The pace of signing up incremental partners in banks and NBFCs may, however, slow down as the focus on unsecured loans diminishes. 

Despite these challenges, BofA Securities maintains a 'buy' rating on One97 Communications Ltd. stock, with a target price of Rs 1,165 apiece, indicating a potential upside of 28.7 per cent. The brokerage views the risk-reward balance as favorable and sees Paytm as competitively well-placed, especially if it can sign up more partners.

The recent guidelines from the RBI aim to address the high growth in the unsecured loans segment. The circular specifies that consumer loans for banks and non-banking financial companies, excluding home loans, education loans, vehicle loans, microfinance, and gold loans, will now attract a credit risk weight of 125 per cent, up from the previous 100 per cent.