Mr Sharma owns a 51 per cent stake in Paytm Payments Bank.
Paytm CEO Vijay Shekhar Sharma on Monday resigned as non-executive chairman and board member of 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 due to persistent compliance issues and supervisory concerns.
The RBI's action against the payments bank stemmed from various concerns, including inadequate customer identity checks and a perceived lack of arms-length distance from the parent company, Paytm. These issues prompted a major board overhaul, with former chairman of Central Bank of India, Srinivasan Sridhar, former Bank of Baroda Executive Director Ashok Kumar Garg, and two retired Indian Administrative Service (IAS) officers joining the payments bank's board.
Paytm's 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 that the move aims to reassure the regulatory body about Paytm's commitment to adhering to norms.
Why Vijay Shekhar Sharma Quit
Mr Sharma owns a 51 per cent stake in Paytm Payments Bank while One 97 Communications, as Paytm was formally known, owns the rest. Mr 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 also seen as an attempt to disassociate Paytm from its payments bank unit and position it as an independent entity.
The regulatory challenges faced by Paytm have impacted its stock value, with a significant drop since the RBI's order. However, the stock has shown signs of recovery, attributed to Paytm's partnership with new banking entities and the RBI extending the deadline for winding down the payment bank's operations.
Nirmala Sitharaman's Action
Finance Minister Nirmala Sitharaman on Monday convened a meeting with representatives from the fintech industry to discuss their concerns and issues. However, the developments at Paytm Payments Bank were not specifically addressed during this meeting, according to two government officials who were present, reports Reuters.
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 a statement released by the ministry.
The concerns raised by some listed fintech companies regarding their ownership structures will be examined by both the central bank and the 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 space. Simplifying KYC requirements could streamline onboarding processes for users, potentially addressing some of the operational challenges faced by fintech firms.