Paytm terminates inter-company agreements with banned Paytm Payments Bank

In response to ongoing regulatory challenges and heightened scrutiny from RBI and other regulators, Paytm-parent One 97 Communications, continues to sever various business ties with its subsidiary, Paytm Payments Bank (PPBL). This includes the discontinuation of inter-company agreements with Paytm and its payments bank unit.

“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,” the parent company said in a stock exchange filing. The specific details of the terminated agreements remain undisclosed for now.

The termination and other protective measures are in response to RBI’s ban that came across in January 2024, after warning for KYC malpractices to the payments bank for nearly two years. India’s central bank then went on to impose a series of restrictions on PPBL’s operations due to concerns regarding the bank’s adherence to regulations and its relationship with Paytm. The RBI’s primary concerns stemmed from inadequate customer identification checks, wherein PPBL was found to have shortcomings in its customer identification processes, raising potential risks of fraud and money laundering. Furthermore, the close association between PPBL and Paytm, particularly in terms of ownership and management structures, raised concerns about the bank’s ability to operate independently and objectively.

While Paytm intended to cut ties with PPBL last month, the apex bank later provided a minor lifeline by providing an extension to the deadline for PPBL to cease specific transactions (including accepting fresh deposits or top-ups in customer accounts, wallets, FASTags and other instruments). At that time, it was granted a 15-day reprieve, meaning the deadlines was pushed back to March 15.

In response to the RBI’s actions, Paytm initiated a series of measures aimed at demonstrating its commitment to regulatory compliance and establishing a clear distinction between the two entities. For one, Vijay Shekhar Sharma, Paytm’s founder and CEO, stepped down as the non-executive chairman and board member of PPBL. For another, PPBL’s board was reconstituted with the appointment of independent directors, including former central bank officials and experienced bankers, and the shareholder agreement between Paytm and PPBL was simplified to strengthen the bank’s governance and decision-making processes. The new-found discontinuation of various inter-company agreements also seems to be a measure that is aimed to reduce interdependencies and establish a clearer separation between their operations.