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Vijay Shekhar Sharma resigns from Paytm Bank board

Paytm has tried to distance itself from Paytm Payments Bank due to the regulatory scrutiny.

Paytm founder Vijay Shekhar Sharma has resigned as non-executive chairman of Paytm Payments Bank Limited (PPBL) following the central bank’s directions to restrict operations of Paytm Payments Bank by March 15, 2024. PPBL has reconstituted its Board members according to a filing with the exchanges.

In its filing, One 97 Communications Limited (OCL), parent company of Paytm said, “OCL supports PPBL’s move of opting for a board with only independent and executive directors by removing its nominee. The Company has been separately informed that Vijay Shekhar Sharma has also resigned from the Board of Paytm Payments Bank to enable this transition.”

The filing revealed reconstituted members of the board :

  • Shri Srinivasan Sridhar, ex-Central Bank of India Chairman
  • Shri Debendranath Sarangi, retired IAS officer
  • Shri Ashok Kumar Garg, former Executive Director of Bank of Baroda
  • Smt Rajni Sekhri Sibal, retired IAS officer

RBI’s restrictions on Paytm

Sharma’s resignation and the reconstitution of PPBL’s board come after the Reserve Bank of India’s action against Paytm Payments Bank, wherein “multiple audits by external auditors revealed persistent non-compliance and continued material supervisory concerns in the bank, warranting the above supervisory action,” according to the RBI

On January 31, the RBI issued an order banning Paytm Payments Bank Limited (PPBL) from carrying out a host of activities. The ban called for the termination of all deposits, credit transactions, or top-ups, fund transfers, Bharath Bill Pay, and Unified Payments Interface (UPI) facility. It also called for settlement of all pipeline transactions and nodal accounts by March 15, 2024. PPBL has also been banned from onboarding new customers since March 2022.

Following these restrictions, concerns were raised about Paytm’s customers being negatively affected due the restrictions on Paytm Payments Bank potentially causing the eventual shutdown of UPI services available on the Paytm app. To address this, the RBI issued clarifications in the form of FAQs and also has advised the National Payments Corporation of India (NPCI), that operates UPI, to examine Paytm’s request to become a UPI service provider. They advised the NPCI to facilitate this by certifying 4-5 banks that can process high-volume UPI transactions as Payment Service Provider (PSP) for Paytm.

Connection between Paytm and Paytm Payments Bank

Paytm Payments Bank is an associate company of Paytm, under One 97 Communications Limited (OCL). Vijay Shekhar Sharma, who is also the CEO at Paytm, owns a 51% stake in Paytm Payments Bank while One 97 Communications owns the rest. They function as two separate entities, but Paytm was dependent on Paytm Payments Bank for various services such as UPI, wallets, FASTags, etc., which is why the restriction on the payments bank adversely affected Paytm.

However, Paytm has tried to distance itself from Paytm Payments Bank due to regulatory scrutiny. “Paytm Payments Bank Limited is run independently by its management and board. While OCL is allowed to have two board seats on the board of Paytm Payments Bank Limited, as a part of its shareholder agreement, OCL exerts no influence on the operations of Paytm Payments Bank Limited other than as a minority board member and minority shareholder,” OCL stated in a recent filing. These board seats held by Paytm have now been relinquished as well.

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