Paytm shares up 4% on discontinuation of ties with Paytm Payments Bank

Shares of Paytm opened in green and surged 3.87% in early morning trade on Friday after the Vijay Shekhar Sharma-led payments company announced final disassociation with its associate entity, Paytm Payments Bank.

The One97 Communications board has approved the discontinuation of various inter-company agreements with Paytm Bank Limited (PPBL), the company said. The current decision comes after Sharma on February 27, 2024, said he will step down as part-time non-executive chairman and board member at Paytm Bank as part of its restructuring.

"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.

One97 board on February 12, 2024, had formed a committee to work with its board to strengthen compliance following the RBI's decision against Paytm Bank. It formed a group advisory committee chaired by former SEBI chairman M Damodaran to work with the Board in further strengthening compliance. One97 has also withdrawn its nominee from the Paytm Bank board, and its future business will be led by an all-new board.

As part of the company's effort to reduce dependencies, says Paytm, both companies have “mutually agreed to discontinue” various inter-company agreements with Paytm and its group entities. Paytm Payments Bank, 51% owned by Sharma while the remaining 49% by One 97, has been barred from accepting further credits into its customer accounts and wallets after March 15, 2024.

Further, the shareholders of Paytm Bank will simplify the shareholders' agreement (SHA) to support PPBL’s governance, independent of its shareholders, the statement says.

The One97 board approved the termination of agreements and amendment of SHA on March 1, 2024. Paytm had earlier announced it would sign up new partnerships with other banks and take measures to provide seamless services for its customers and merchants.

In its intimation to stock exchanges on Feb 1, 2024, the company had indicated the current decision will have a possible financial impact worth ₹300-500 crore on EBITDA annually. Assuring its customers and shareholders, One 97 has said its key services like the Paytm app, Paytm QR, Paytm Soundbox and Paytm Card machines will continue to work uninterrupted.

Paytm share, meanwhile, opened at ₹413.55 and soon surged to the day's high of ₹423, taking its m-cap to ₹26,558.69 crore. The RBI, meanwhile, gave a breather to Paytm last week when it advised the National Payments Corporation of India (NPCI) to examine the request of One97 to become a “third-party application provider (TPAP)” for the UPI channel for continued UPI operations. The RBI opined that it’ll minimise concentration risk in the UPI system by having multiple payment app providers.