Paytm Payments Bank and Paytm Cease Intercompany Agreements Amid Regulatory Scrutiny

Leading fintech player Paytm decided to cut ties with its payments bank division, Paytm Payments Bank Limited (PPBL), by ending several inter-company agreements. On March 1, the stock markets were informed of the decision, which had been authorized by the Paytm board. Given that Paytm Payments Bank Limited (PPBL) is being investigated by the RBI for ongoing serious supervisory concerns and continuous non-compliance, the action is significant.

According to the BSE filing. One 97 Communications, the company that owns and manages Paytm, stated in a statutory statement on Friday that it and its associate business, Paytm Payments Bank Limited (PPBL), have strengthened their approach to PPBL's autonomous operations by introducing new safeguards. "As part of this process to reduce dependencies, Paytm and PPBL have mutually agreed to discontinue various inter-company agreements with Paytm and its group entities," 

To maintain the independence of the bank's governance from its shareholders, the PPBL shareholders have also decided to streamline the Shareholders Agreement (SHA). In a statement to the stock markets, One 97 Communications (OCL), the parent company of Paytm and owner of the Paytm brand, emphasized this milestone. Paytm hasn't revealed the precise terms of the canceled agreements, but it appears that the business is concentrating on streamlining the organization and operations.

The primary figure in determining the strategic direction of Paytm Payments Bank is its CEO, Vijay Shekhar Sharma, who has a majority 51% interest in the company. This choice is in line with Paytm's objective to develop a more effective and long-lasting business model.

Paytm has announced new alliances with additional banks.

Paytm has previously said that it will form new alliances with banks and take steps to ensure that its users and merchants receive smooth services. On February 1, 2024, the corporation notified stock markets of the potential financial effect.

"One 97 Communications Limited (OCL), as previously announced, and its services, which comprise the Paytm app, Paytm QR, Paytm soundbox, and Paytm Card machines, will carry on as usual. For its users, Paytm is dedicated to maintaining the greatest standards of industry-leading innovation and technologically advanced products,"

The regulatory activity of the RBI

Recall that the RBI prohibited PPBL from taking new deposits or top-ups in client accounts, wallets, FASTags, and other instruments beyond February 29 in a regulatory move taken in January. This deadline was subsequently extended to March 15. According to the central bank, PPBL consistently disregarded KYC regulations and banking standards, which prompted the action.

The RBI enforced strict measures regarding anomalies in Know Your Customer (KYC) protocols, noncompliance concerns, and transactions involving connected parties. The intervention is a response to worries over dubious transactions involving millions of rupees and money laundering. Red flags were triggered by accounts that were not in compliance with KYC and by the usage of a single PAN for several accounts.

PPBL was investigated by the RBI when it was discovered that hundreds of thousands of accounts had been opened without the required documentation, according to a Reuters story. Regarding the anomalies in PPBL accounts, the RBI notified the Enforcement Directorate (ED) and other governmental organizations.

Withdrawal of Vijay Shekhar Sharma

On Monday, the board of Paytm Payments Bank Limited was reorganized following the resignation of Vijay Shekhar Sharma as the bank's part-time non-executive chairman. PPBL will get to work on selecting a new Chairman.