:Shares of Indian fintech firm Paytm jumped nearly 6 per cent on Wednesday after the country's payments regulator allowed the company to sign new users for digital payments via UPI, which analysts said removed a key regulatory overhang.

UPI, or Unified Payments Interface, is India's home-grown real-time payments system that allows users to transfer money digitally without disclosing bank account details. It is one of the country's most popular online payment method.

The National Payments Corporation of India (NPCI) gave Paytm permission to restart onboarding new UPI customers, the company said late on Tuesday.

That was hours after it reported second-quarter results that showed it barely slowed its revenue decline as its digital payments user base dwindled since the Reserve Bank of India (RBI) ordered the winding down of Paytm's banking unit in January due to persistent compliance issues.

The NPCI approval "has significantly reduced regulatory risk" for Paytm, Morgan Stanley said.

It also "paves the way for (Paytm to) re-accelerate its dwindling user base," Emkay analysts said.

Paytm's monthly transacting users (MTU) fell to 70 million in the September quarter from 100 million in the quarter before the RBI clampdown.

Since the approval comes amid the ongoing festive season, it can also accelerate Paytm's gross merchandise value growth, Jefferies said.

To be sure, Paytm has still not cleared all regulatory hurdles. The RBI, also India's financial regulator, is yet to give the company a license for payment aggregation, a third-party service that allows businesses to accept and disburse payments online.

That is the "key remaining risk", Jefferies said.

At least nine brokerages, including Morgan Stanley and Jefferies, raised their price targets on the stock, lifting the average to about 616 rupees, per LSEG data.

However, that is still below Paytm's current price of about 727 rupees. And despite the near 6 per cent jump on the day, the stock is still down about 4.5 per cent since the RBI clampdown on Jan. 31.