Payments firm Paytm on Friday severed some ties with its payments bank unit, which India’s banking regulator ordered shut down, in its latest attempt to address compliance concerns that sent its shares tumbling last month.

Paytm, formally known as One 97 Communications, and its banking arm have mutually agreed to terminate various inter-company agreements, the company said. It is not specified what agreements are terminated.

Paytm Payments Bank has also agreed to simplify the shareholders’ agreement to facilitate governance independent of its shareholders, Paytm said.

“Paytm and Paytm Payments Bank will henceforth not enter into related party transactions under the agreement,” said a source familiar with the company’s strategy.

The source did not want to be identified because he was not authorized to speak to the media. Paytm did not immediately respond to an email to Reuters seeking comment.

Paytm CEO Vijay Shekhar Sharma owns 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 banking unit as part of an overhaul.

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

“Paytm has accepted that the payments banking license will be cancelled, but is leaving the door open to enter financial services in the future,” the source said.

Shares of Paytm rose more than 4% to Rs. 420 the next day after the announcement.

“The termination of the agreements ensures a complete severance of ties between Paytm and the payments bank,” said Pranav Gundlapalle, senior research analyst at Bernstein, adding that the continuation of Paytm’s operations after March 15 is a sign that they are moving through the regulatory overhang.

“Evidence that the problems are limited to Paytm Payments Bank and further evidence that the two will be separate entities will lead (to the stock) higher,” Gundlapalle said.

Moves including Paytm signing a new banking partner and the RBI’s move to ensure continuity of Unified Payments Interface (UPI) transactions on the Paytm app helped the stock recover from a record low hit in mid-February.

The stock is still down nearly 45 percent since the January 31 RBI action.

© Thomson Reuters 2024

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