Paytm & its payments bank agree to discontinue agreements

Bengaluru: The digital payment service in India, Paytm, said on Friday that it has agreed with its payment bank unit to discontinue their inter-company agreements in the process between the two to reduce dependencies, Reuters reported.

However, the company, formally known as One 97 Communications, did not specify which agreements they have terminated. It said that the payment bank agreed to simplify the shareholders' agreement to support the payment bank's governance, independent of its shareholders.

In the Paytm Payments Bank, Paytm CEO Vijay Shekhar Sharma has a 51% stake, while the rest is owned by Paytm itself.

After the RBI's clampdown on the Paytm Payments Bank, Sharma stepped down as non-executive chairman and board member of the payments bank unit. It was only days after that Paytm and its payments bank came to the aforementioned agreement.

Citing persistent compliance violations as well as supervisory concerns, the RBI ordered Paytm Payments Bank to stop operations by March 15. This has triggered a meltdown in Paytm's stock. The central bank took the action after there were concerns, including inadequate customer identity checks and a lack of arms-length distance from parent company Paytm, Reuters reported.

Last week, following an application by Paytm to become a third-party application provider (TRAP), the Reserve Bank of India asked the Payments Corporation of India to examine the request, the central bank said. If the request by Paytm is approved, the app could continue processing payments via UPI- unified payments interface, Reuters reported.

RBI had asked Paytm Payments Bank, an associate of Paytm, to stop its business by March 15. The Jan 31 direction by the central bank led to disruptions for Paytm, which used the banking unit at the back end.

As per RBI mandate, Paytm will need to be backed by a set of newly identified banks. RBI has asked the payment corporation to handle the migration. It also said that no new users should be added by Paytm until all the existing users are "migrated satisfactorily to a new handle", Reuters quoted RBI.

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