RBI action triggers six mutual funds to fully exit Paytm, while six others sharply reduce stake in Feb

In February this year, six mutual funds completely divested their holdings in One97 Communications Ltd, fintech Paytm's parent company.

The decision was influenced by a sharp decline in the stock price, which was a direct consequence of regulatory interventions by the Reserve Bank of India (RBI).

The mutual funds that exited include Mahindra Manulife Mutual Fund, Quant Mutual Fund, Bajaj Finserv MF, JM Financial MF, Union MF, and Baroda BNP Paribas MF, collectively selling over 91 lakh shares valued at approximately INR 380 crore.

RBI's regulatory actions trigger market response

The RBI's stringent actions against Paytm Payments Bank for 'persistent non-compliances' have had a ripple effect on investor confidence. The central bank's restrictions, including a bar on the bank from taking new deposits and processing certain transactions, have raised concerns over the company's operational capabilities.

Despite later extensions to some of these restrictions, the initial announcement led to over 40% drop in Paytm's stock value.

Impact on Mutual Fund Holdings

The divestment and reduced stake in Paytm by mutual funds have led to a notable decrease in the value of Paytm shares held by these funds. From January to February, the total value of Paytm shares held by mutual funds dropped from Rs 3,384 crore to Rs 1,426 crore, reflecting the market's reaction to the company's ongoing regulatory and operational challenges.

What's ahead

Despite the current challenges, there is a potential turnaround for Paytm with the expected grant of the third-party application provider (TPAP) licence by the National Payments Corporation of India (NPCI) by mid-March.

The licence would allow Paytm to continue offering Unified Payments Interface (UPI) services, potentially stabilizing its operational framework. RBI Governor Shaktikanta Das's remarks about the NPCI's forthcoming decision on Paytm's application indicate a critical juncture for the company in navigating its regulatory hurdles and restoring investor confidence.