Paytm Cuts Ties with Struggling Payments Bank Division Amid Challenges

In a bid to navigate through regulatory challenges and address compliance issues, Paytm took decisive action on Friday by severing certain ties with its troubled payments bank unit. This strategic move comes in response to the directives from India’s banking regulator, which had ordered the winding down of the payments bank division.

In a statement, Paytm, formally known as One 97 Communications, announced that it had reached a mutual agreement with its banking unit to terminate various inter-company agreements. While the company refrained from detailing the specific agreements being brought to an end, this decision underscores Paytm’s commitment to addressing the regulatory concerns that had previously led to a significant downturn in its share prices.

As part of the efforts to streamline operations and enhance governance, Paytm Payments Bank has also agreed to simplify its shareholders’ agreement. This initiative aims to bolster governance mechanisms within the bank, ensuring independence from its shareholders. By taking proactive steps to refine its operational structure and strengthen governance protocols, Paytm endeavors to instill confidence among stakeholders and navigate the regulatory landscape more effectively. These measures reflect Paytm’s commitment to compliance and its determination to address regulatory challenges head-on.

The termination of inter-company agreements and the simplification of the shareholders’ agreement mark significant strides in Paytm’s journey toward regulatory compliance and operational efficiency. By fostering greater clarity and transparency in its internal processes, Paytm aims to mitigate risks and enhance its resilience in the face of regulatory scrutiny.

These strategic initiatives underscore Paytm’s resolve to uphold the highest standards of governance and navigate regulatory complexities with diligence and foresight.”Paytm and Paytm Payments Bank will not be entering into related-party transactions henceforth as per the agreement,” a source familiar with company’s strategy said.

The source did not wish to be identified because he was not authorised to speak with the media. Paytm did not immediately respond to a Reuters’ email seeking comment.Paytm CEO Vijay Shekhar Sharma owns a 51 percent stake in Paytm Payments Bank while Paytm owns the rest. The move comes days after Sharma stepped down as non-executive chairman and board member of the payments bank unit, as part of a major overhaul.

Moves including Paytm signing a new banking partner and the RBI moving to ensure the continuity of unified payments interface (UPI) transactions on the Paytm app have helped shares to recover from a record low hit in mid-February. The shares are still down almost 45 percent since the RBI action on January 31.