Paytm Cancels Some Agreements With Payments Bank Unit

Payments services provider Paytm has terminated some agreements with its payments bank unit. Reserve Bank of India (RBI) has ordered the closure of this unit of Paytm. This decision was taken due to apprehensions regarding compliance. After this order of RBI, there was a huge fall in the shares of Paytm.

According to Reuters report, Paytm One 97 Communications and its banking unit have mutually agreed to terminate various inter-company agreements. However, it has not been stated which agreements have been terminated. Paytm Payments Bank has also agreed to simplify the shareholders’ agreement. “As per the agreement, Paytm and Paytm Payments Bank will not undertake related party transactions,” said a source with knowledge of the company’s strategy. Paytm did not respond to an email sent by Reuters seeking comment.

Paytm CEO, Vijay Shekhar Sharma holds 51 percent stake in Paytm Payments Bank. Paytm holds the remaining stake. Last week, Sharma had resigned as non-executive chairman and board member of the payments bank unit. RBI has asked Paytm Payments Bank to close its operations by March 15. “Paytm has accepted that its payments bank license will be cancelled. However, it has left the door open to moving into financial services later,” this source said.

Chinese investors’ stake in Paytm was reduced last year due to concerns of the Central Government and RBI about China’s stake in Indian fintech companies. China’s Alibaba had sold its entire stake in Paytm. Apart from this, Japan’s SoftBank Group also reduced its stake in Paytm through open market deals. After this, Sharma’s stake in the company increased. Earlier, RBI had rejected Paytm’s application for payment aggregator license. However, the company was later allowed to reapply for the license. Scrutiny of fintech companies is being increased by RBI.