Paytm's Personal Loans To Face Impact Of RBI's Tighter Consumer Credit Rules: BofA
Personal loans will likely get expensive by at least 50 basis points, it said.
The Reserve Bank of India's move to increase risk weights on unsecured loans will impact Paytm, with risks to loan growth assumptions on the personal loan front and some pressure on take rates, according to BofA Securities Inc.
As per Paytm's Q2 financials, 56% of loan value was from the 'buy now, pay later' segment, 24% from personal loans, and 20% from merchant loans.
"We don't expect this regulation to impact BNPL and merchant loan segment. This is because BNPL is largely a 22-day product and increase by 5–10 basis points may not impact uptake materially... Merchant loan comes under priority sector lending and hence, we don't see any impact on this segment," BofA Securities said in a Nov. 17 note.
However, the personal loans will likely get expensive by at least 50 basis points, it said.
"We expect Paytm and NBFC partners to pass this to consumers, given these regulations are intended to slow down growth in unsecured loan. We note that Paytm has been preemptively slowing its personal loan growth for last few quarters and expects 30% growth. We don't see material downside risks to these, especially if they are able to sign up more partners," the brokerage said.
The overall impact on Paytm is likely to be lower than 5% on the estimated consolidated Ebitda for FY25, BofA said.
"We also think Paytm's pace of signing up incremental partners in banks/NBFCs may slow down as the focus towards unsecured loans reduces from banks and NBFCs," it said.
It maintained its 'buy' rating on the One97 Communications Ltd. stock at a target price of Rs 1,165 apiece, implying a potential upside of 28.7%. "We find risk reward favourable and find Paytm competitively well placed. Any better-than-expected growth or more partners signing up would likely be taken positively by the market."
The Reserve Bank of India's recent guidelines have come in response to high growth in the unsecured loans segment. Among several guidelines, the circular mentioned that consumer loans for banks and non-banking financial companies—barring home loans, education loans, vehicle loans, microfinance and gold loans—will attract a credit risk weight of 125% as compared with the previous 100%.
