Paytm chief Vijay Shekhar Sharma resigns from board after RBI imposes series of measures against agency

The Chief Executive Officer of Paytm, Vijay Shekhar Sharma on February 26, 2024, resigned as non-executive chairman and board member of the Paytm Payments Bank, amid ongoing regulatory challenges faced by the digital payments giant.

The decision follows a series of measures imposed by the Reserve Bank of India (RBI), including an order for Paytm Payments Bank to wind down operations by March 15, 2024 due to persistent compliance issues and supervisory concerns. The RBI actions against the Payments Bank stemmed from various concerns, including inadequate customer identity checks and perceived lack of arm’s length distance from parent company Paytm.

These issues prompted a big overhaul with former chairman of the Central Bank of India, Srinivasan Sridhar, the former Bank of Baroda Executive Director Ashok Kumar Garg, and two retired Indian Administrative Service (IAS) officers joining the Payment Banks Board. Paytm decision to reconstruct the board with independent and executive directors is seen as an effort to demonstrate compliance with regulatory norms and salvage the situation.

While the RBI did not explicitly mandate the board reconstruction, it is speculated thath the move aims to reassure th regulatory body about Paytm’s commitment to international norms. Sharma, who owns a 51 percent stake in Paytm’s Payments Bank while One 97 Communications as Paytm was formally known, owns the rest.

Sharma said that his resignation from the board and the appointment of independent directors were strategic steps to enable a smooth transition and enhance governance structures. The move is seen as an attempt to disassociate Paytm from its payment bank unit and position as an independent entity. The regulatory challenges faced by the Paytm have impacted its stock value, with a significant drop since the RBI order.

However, the stock has shown signs of recovery, attributed to Paytm partnership with the new bank entities and the RBI extending the deadline for winding down the payment bank operations. The finance minister Nirmala Sitharaman convened a meeting on February 26, 2024 with representatives from the fintech industries to discuss with Indian law-enforcement agencies to discuss their concerns and issues.

However, the developments at the Paytm Payments Bank were not specifically addressed during the meeting according to two government officials who were present, as per an Indian media agency. In response to the crisis, the finance ministry has announced plans to hold discussions with Indian law-enforcement agencies and fintech firms in the near future. This upcoming meeting aims to facilitate communication between fintech firms and various enforcement agencies as mentioned in statement released by the ministry.

The concerns raised by certain listed fintech companies regarding their ownership structures will be examined by both central bank and government. This move signals a broader effort to enhance transparency and accountability in the fintech sector.

Additionally, the government has pledged to simplify Know Your Customer (KYC) norms across the fintech states. Simplifying KYC Requirements could streamline on boarding processes for users, potentially, the addressing some of the operational challenges faced by fintech firms.