Indian financial services company Paytm sent shockwaves through the industry on Wednesday after it revealed that it plans to issue fewer personal loans worth less than 50,000 Indian rupees ($600), in a move that has already begun to worry many fintech investors.
Paytm’s move came in the wake of the Reserve Bank of India (RBI) recently tightening consumer loan norms and publicly voicing concerns over bad and small personal loans. Paytm on Wednesday said it has become “very conservative” and will expand its portfolio of higher-ticket personal and business loans for customers with lower risks and higher creditworthiness.
In a call with analysts on Wednesday, Paytm’s president and chief operating officer said “recent macro development and regulatory guidance” as well as dialogue with lending partners prompted the company’s move.
“We believe this reflects the growing conservatism in the system as well as Paytm’s significant share in the sectors,” Jefferies analysts said. Goldman Sachs lowered its Paytm revenue estimates and adjusted EBITDA for FY24 to FY26 by ~10%/40%, based on sharply lower lending estimates, and said it expects FY25 disbursement growth of 0%. % on an annual basis compared to 37% previously.
The move impacts the growth momentum and return on unsecured lending equity profile of the entire sector, and smaller players may be disproportionately affected, industry executives said.
“For about 77% of Paytm’s revenue base which includes payments, commerce and cloud, we see no change in outlook, with revenues for these segments increasing at a moderate to high rate over the next two to three years. However, for the lending segment, we now expect that Overall disbursements in 2HFY24 are 11% lower compared to 1H, with FY25 disbursements growing 0% y/y (versus 37% prior estimate),” Goldman Sachs analysts wrote on Thursday.
“Lending has been a key driver of improving Paytm’s profitability and we see a reduced visibility of growth in this segment over the next 6-12 months given the higher than expected pressure on microlending that Paytm is witnessing. While Paytm has guided for a 40-50% decline in disbursements Postpaid In the near term, the range of outcomes remains broad in our view, with further pressure likely if the macro environment does not see meaningful improvement.