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Business News/ Companies / News/  Paytm discontinues inter-company agreements with Paytm Payments Bank
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Paytm discontinues inter-company agreements with Paytm Payments Bank

As per the company statement, PPBL has agreed to simplify the shareholders' agreement. The goal is to enhance the governance of Paytm Payments Bank, making it more independent of its shareholders.

File photo: Paytm app is seen on a smartphone in this illustration (Reuters / Dado Ruvic)Premium
File photo: Paytm app is seen on a smartphone in this illustration (Reuters / Dado Ruvic)

Fintech major Paytm on March 1 said it has mutually agreed to discontinue various inter-company agreements with its payments bank unit Paytm Payments Bank (PPBL) to “reduce dependencies", Reuters reported.

Paytm parent One97 Communications in its statement did not specify what agreements were being terminated.

As per the company statement, PPBL has agreed to simplify the shareholders' agreement. The goal is to enhance the governance of Paytm Payments Bank, making it more independent of its shareholders.

This decision comes days after Paytm CEO Vijay Shekhar Sharma resigned from the non-executive chairman and board member positions at PPBL. He owns 51 percent of the payments unit, while Paytm owns the rest.

Also Read | What do start-ups expect from govt and regulators amid crises at Byju's and Paytm Payments Bank? Read on to find out

The Paytm Payment Bank Crisis

Paytm's fintech arm, PPBL has been hit with harsh regulatory limits by the Reserve Bank of India (RBI) — limits that essentially shut down the whole operation. The RBI instructed PPBL to cease further deposits, credit transactions, and top-ups on customer accounts after March 15.

The central bank said the move came as PPBL repeatedly failed to comply with banking norms and KYC requirements. 

The RBI cracked the whip over irregularities in KYC (know your customer) norms, compliance issues and related party transactions. The intervention stems from concerns about money laundering and questionable transactions involving crores of rupees. Non-KYC-compliant accounts and instances of single PANs used for multiple accounts raised red flags.

As per a Reuters report, PPBL came under RBI scrutiny as hundreds of thousands of accounts were found to be created without proper identification. The RBI alerted the Enforcement Directorate (ED) and other government agencies regarding the irregularities in PPBL accounts.

Also Read | Have Paytm and Byju's debacles dented Indian startups' prospects? Experts weigh in

Red flags were also raised as there were instances where the total value of transactions in PPBL accounts exceeded crores of rupees, surpassing regulatory limits in minimum KYC pre-paid instruments, PTI reported. Sources told the agency this raised concerns about potential money laundering.

(With inputs from Reuters)

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Published: 01 Mar 2024, 09:05 AM IST
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