India: Paytm terminates some ties with troubled banking unit

Payments firm Paytm on Friday cut some ties with its payments bank unit, which India's banking regulator has ordered to be wound down, in its latest attempt to address compliance concerns that triggered a meltdown in its shares last month.

Paytm, formally known as One 97 Communications, and its banking unit mutually agreed to end various inter-company agreements, the company said. It did not specify what agreements were being terminated.

Paytm Payments Bank also agreed to simplify the shareholders' agreement to support governance, independent of its shareholders, Paytm said.

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"Paytm and Paytm Payments Bank will not be entering into related-party transactions henceforth as per the agreement," a source familiar with company's strategy said.

The source did not wish to be identified because he was not authorised to speak with the media.

Paytm, in a response to Reuters' queries, reiterated the exchange statement saying that One 97 Communications and Paytm Payments Bank are taking measures to strengthen their approach towards independent operations of the payments bank.

Paytm CEO Vijay Shekhar Sharma owns a 51% stake in Paytm Payments Bank while Paytm owns the rest. The move comes days after Sharma stepped down as non-executive chairman and board member of the payments bank unit, as part of a major overhaul.

Wind down operations

The Reserve Bank of India (RBI) had asked Paytm Payments Bank to wind down operations by March 15 due to persistent compliance issues and supervisory concerns.

"Paytm has accepted that the payments bank licence will be cancelled, but is keeping the door open to enter into financial services in the future," the source said.

Paytm's shares were up more than 4% at 420 rupees the day after the announcement.

"The termination of agreements ensures a complete severance of ties between Paytm and the payments bank," said Pranav Gundlapalle, senior research analyst at Bernstein, adding that continued Paytm operations after March 15 was a sign that they were getting past the regulatory overhang.

"Evidence that the troubles are limited to Paytm Payments Bank and further evidence that the two are going to be separate entities will drive upside (for the stock)," Gundlapalle said.

Moves including Paytm signing a new banking partner and the RBI moving to ensure the continuity of unified payments interface (UPI) transactions on the Paytm app have helped shares to recover from a record low hit in mid-February.

The shares are still down almost 45% since the RBI action on January 31.

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