Paytm wallet acquisition: The shares of Jio Finance surged as much as 16.5 per cent to an intraday high of Rs 295.7 apiece on the NSE following a report that the company is in the race to acquire crisis-hit Paytm wallet. Both HDFC Bank and Jio Financial Services are leading contenders to acquire Paytm wallet, according to a report by The Hindu Businessline quoting sources.

The potential acquisition comes in the wake of the Reserve Bank of India's (RBI) stringent ban on Paytm Payments Bank, imposed on January 31, 2024, which has cast a shadow on Paytm's wallet business.

The Paytm wallet, housed under Paytm Payments Bank, may be the first casualty of the RBI's ban, prompting the company to engage in exploratory talks with interested investors. Jio Financial Services and HDFC Bank are reported to be actively considering the acquisition, with discussions dating back to November of the previous year.

Paytm's urgency to sell the wallet business stems from KYC-related issues, causing a slowdown in business operations, the report said. The talks with Jio would have materialised earlier if valuations on the table were deemed acceptable, the report added.

The looming threat of business disruption has led to what some experts term a "distress sale," emphasising the priority of ensuring continuity for existing Paytm wallet users over negotiating valuations. Paytm's decision to reach out to HDFC Bank just before the imposition of the ban suggests an alternative avenue for the beleaguered company.

HDFC Bank, a crucial banking partner for Paytm, could benefit significantly from the deal, enhancing its proprietary wallet business and addressing user overlap issues with Paytm wallet users. Payzapp, HDFC Bank's digital wallet with approximately 14 million users, could see a boost through the potential collaboration.

On the other hand, Jio Financial, with limited presence in the payments bank space, sees the acquisition of Paytm's wallet as an opportunity for a substantial entry. The sources mentioned in the report hint at a broader bailout plan, with Jio possibly extending an offer to acquire Paytm Payments Bank as well.

RBI data for December underscores the significance of Paytm's wallet business, with approximately 24 million transactions totalling Rs 8,000 crore for purchases and Rs 5,800 crore for money transfers. Paytm's 330 million wallet accounts position it as the largest player in the wallets segment.