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Paytm shares surge 4 Percent after Discontinuing ties with Paytm Payments Bank
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Paytm's shares opened positively, showing a 3.87% surge in early morning trading following an announcement by the company led by Vijay Shekhar Sharma. The announcement stated the final disassociation between Paytm and its affiliate, Paytm Payments Bank. The One97 Communications board has given approval to terminate several inter-company agreements with Paytm Payments Bank Limited (PPBL). This decision comes subsequent to Sharma's statement on February 27, 2024, wherein he declared his resignation from his position as part-time non-executive chairman and board member at Paytm Bank, as part of the company's restructuring efforts.
"One 97 Communications Ltd (Paytm) and PPBL announce additional measures to pursue independent future plans - Paytm and PPBL have mutually agreed to discontinue various inter-company agreements. One 97 Communications Ltd (Paytm) would like to inform that the Company and its associate entity, Paytm Payments Bank Limited (PPBL), have introduced additional measures to strengthen their approach towards independent operations of PPBL", an exchange filing shows.
On February 12, 2024, the board of One97 established a committee aimed at enhancing compliance in response to the RBI's actions against Paytm Bank. This committee, chaired by former SEBI chairman M Damodaran, was tasked with collaborating with the board to bolster compliance measures. Additionally, One97 has removed its representative from the Paytm Bank board, signaling a shift towards a new board to steer the company's future endeavors.
In a move to decrease dependencies, Paytm announces that both entities have reached a mutual agreement to terminate several inter-company agreements with Paytm and its affiliated companies. Paytm Payments Bank, with 51% ownership by Sharma and the remaining 49% by One 97, will cease accepting additional credits into its customer accounts and wallets after March 15, 2024. Additionally, the shareholders of Paytm Bank will streamline the shareholders' agreement (SHA) to reinforce PPBL’s governance, ensuring its independence from its shareholders, as stated in the announcement.
One97 board officially sanctioned the termination of agreements and the modification of the SHA. Prior to this, Paytm had publicized its intention to forge new partnerships with alternative banks and implement measures aimed at ensuring seamless services for both its customers and merchants. In its notification to stock exchanges, the company had hinted at a potential annual financial impact ranging from Rs 300 to Rs 500 crore on EBITDA due to the current decision. Assuring its customers and shareholders, One97 affirmed that essential services such as the Paytm app, Paytm QR, Paytm Soundbox, and Paytm Card machines will continue to operate without disruption.
Meanwhile, Paytm shares commenced trading at Rs 413.55 and quickly ascended to reach the day's peak at Rs 423, propelling its market capitalization to Rs 26,558.69 crore. Last week, the Reserve Bank of India (RBI) offered a reprieve to Paytm by advising the National Payments Corporation of India (NPCI) to assess One97's request to be designated as a 'third-party application provider (TPAP)' for the UPI channel, enabling the company to sustain its UPI operations. The RBI expressed its viewpoint that having multiple payment app providers would mitigate concentration risk within the UPI system.