India's Paytm jumps 5% as digital payments app survives banking unit shutdown

BENGALURU (Reuters) -Shares of India's Paytm rose a stock exchange-allowed maximum of 5% on Friday, a day after it got a third-party application provider license that will allow it to offer digital payments after its banking unit ceases operations.

The license, granted by the country's payments authority, came as Paytm Payments Bank will cease most operations on March 15, after the Reserve Bank of India ordered the banking unit to stop accepting fresh deposits in its accounts or popular wallets, following persistent compliance breaches.

Paytm, which owns 49% in the banking unit, has seen its stock halve in value since the regulatory clampdown, in the worst crisis for one of India's largest digital payment firms.

Paytm's shares were up 5% at 370.70 rupees early in the session, set for its best day in two weeks, with its trading volume of more than 4.8 million shares, making it the stock's third busiest day so far this month.

The third-party app provider license, brokerage UBS said in a note, means Paytm will operate like its competitors such as Google Pay and PhonePe, likely shifting investor focus to operational performance over regulatory headwinds.

However, Jefferies said that for Paytm to retain customers and merchants, it will have to dip into its cash reserves of 85 billion rupees (about $1 billion).

After Friday's deadline, customers who have deposits in the bank's accounts, wallets and toll tags for paying highways taxes, can still access them. But no fresh deposits can be made.

Paytm plans to reduce nearly 20% of staff at its banking unit in certain divisions, including operations, Reuters reported on Thursday, citing sources.

Paytm Payments Bank will still hold a regulatory license unless it is withdrawn by the RBI but it is unclear what purpose the unit will serve after the business halt, these sources said.

(Reporting by Rama Venkat in Bengaluru; Editing by Savio D'Souza and Mrigank Dhaniwala)