Paytm and PPBL Part Ways: End Inter-Company Agreements

Paytm, the digital payments giant, has announced a significant development in response to ongoing regulatory actions against its associate entity, Paytm Payments Bank Limited (PPBL). The company informed the stock exchanges on March 1 that its board has given approval for the discontinuation of several inter-company agreements with PPBL.

“Pursuant to Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, we wish to inform you that, the Board of Directors of the Company on March 01, 2024, at 07:28 A.M. (IST), through circulation, have approved the discontinuation of various inter-company agreements with its associate entity, Paytm Payments Bank Limited (PPBL),” Sunil Kumar Bansal, Company Secretary & Compliance Office informed this to the Stock Exchanges.

Addressing Governance Concerns Amid Regulatory Action

In addition to terminating agreements, Paytm's parent company, One 97 Communications (OCL), revealed that shareholders of PPBL have agreed to simplify the Shareholders Agreement (SHA) to enhance PPBL’s governance, independent of its shareholders. OCL, the owner of the Paytm brand, made this disclosure to the stock exchanges, positioning the move as an effort to strengthen governance structures.

This strategic decision comes against the backdrop of regulatory actions taken by the Reserve Bank of India (RBI) against PPBL. On January 31, the RBI imposed significant business restrictions on the payments bank, citing a prolonged history of non-compliance by Paytm promoters. These non-compliance issues included violations related to Know Your Customer (KYC) and Anti-Money Laundering (AML) norms.

Paytm responded to these challenges by emphasizing its commitment to maintaining the highest standards of market-leading innovation and technology-enabled solutions for its customers.

"One 97 Communications Ltd (Paytm) would like to inform that the Company and its associate entity, Paytm Payments Bank Limited (PPBL), have introduced additional measures to strengthen their approach towards independent operations of PPBL.

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. Further, the shareholders of PPBL have agreed to simplify the Shareholders Agreement (SHA) to support PPBL’s governance, independent of its shareholders. The Board of OCL approved the termination of agreements and amendment of SHA on March 1, 2024. 

Paytm had announced earlier that it would sign up new partnerships with other banks and take measures to provide seamless services for its customers and merchants. In its intimation to stock exchanges on Feb 1, 2024, the company had indicated the possible financial impact.As informed earlier, One 97 Communications Limited and its services that include the Paytm app, Paytm QR, Paytm soundbox and Paytm Card machines will continue to work uninterrupted. 

Paytm is committed to uphold the highest standards of market leading innovation and technology 
enabled solutions for its customers," Paytm said in a statement.

Board's Approval and Future Initiatives

In the latest update, OCL confirmed that the board approved the termination of agreements and the amendment of SHA on March 1, 2024. Paytm had previously announced its intention to forge new partnerships with other banks and take measures to ensure seamless services for customers and merchants despite the regulatory hurdles.

The company reassured stakeholders that key services, including the Paytm app, Paytm QR, Paytm soundbox, and Paytm Card machines, will continue to operate without interruption.

Market Response, Financial Implications and Strategic Partnerships

In response to the board's approval, Paytm witnessed a 4% rally in its stock, reflecting positive investor sentiment. The company had earlier hinted at the possible financial impact of these regulatory challenges in its communication to stock exchanges on February 1, 2024.

On February 16, Paytm announced a strategic partnership with Axis Bank for the settlement of merchant payments. The shift of its nodal account to Axis Bank aims to ensure uninterrupted merchant settlements, aligning with Paytm's commitment to providing seamless services.

Despite regulatory challenges, Paytm is making strategic moves, such as partnering with major banks and exploring new avenues to maintain operational efficiency.

NPCI Application and UPI Transition

In a joint effort with HDFC Bank and Yes Bank, OCL applied to be a third-party application provider (TPAP) with the National Payments Corporation of India (NPCI) on February 22. The move aims to secure the operation of the Unified Payments Interface (UPI) on the Paytm platform, ensuring minimal disruption for customers.

The Reserve Bank of India clarified, through Frequently Asked Questions (FAQs), that existing Paytm bank customers with available balances need not worry. Customer withdrawals up to the available balance will be facilitated by PPBL, except for accounts frozen or lien marked by law enforcement or judicial authorities.

Yes Bank's Openness to Acquire Paytm's Merchants

Meanwhile, Yes Bank's Managing Director and CEO, Prashant Kumar, expressed the bank's openness to acquiring merchants from Paytm Payments Bank Ltd. He emphasized the need for thorough KYC compliance and due diligence, highlighting the potential long-term benefits for the bank, including cross-selling opportunities.

Kumar stated, "For Yes Bank, this is a very good opportunity, and we are open to acquiring the merchant accounts… On average, even if these merchants transact for nearly Rs 25,000 a day, it is a big opportunity." He also underlined the importance of adhering to regulatory guidelines and ensuring that risks are appropriately addressed.

It is for the time to say whether the termination of inter-company agreements and strategic partnerships with established banks address regulatory concerns while maintaining its position as a key player in the digital payments ecosystem.

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