What lies ahead for Vijay Shekhar Sharma and Paytm Payments?

With Vijay Shekhar Sharma stepping down from the board of Paytm Payments Bank, in the wake of stringent measures imposed by the Reserve Bank of India (RBI), questions about the future trajectory of the embattled financial institution have gotten louder.

Sharma’s resignation and the reconstitution of the board come at a very tumultuous time for Paytm Payments Bank.

Last month, the RBI announced a slew of curbs on the payments bank, barring it from accepting any deposits and from processing credit transactions or top-ups into any of its customer accounts due to persistent non-compliance issues and material supervisory concerns.

Initially, the central bank also prohibited Paytm from offering other banking services, such as UPI and fund transfers, after 29 February. It later extended some of these restrictions until 15 March.

Not only is the payments bank now grappling with regulatory scrutiny from the RBI, it is also on the radar of the Enforcement Directorate (ED) for alleged Foreign Exchange Management Act (FEMA) violations.

It is pertinent to note that Paytm Payments Bank is an associate of One97 Communications Ltd, the parent of Paytm, with Sharma holding a 51 per cent stake and the fintech giant holding the remaining 49 per cent. Following the RBI's actions, Paytm's shares too witnessed a sharp decline.

However, its stock has shown signs of recovery following further clarifications from the central bank on the issue. After emerging as the biggest gainer among new-age Indian tech stocks last week, Paytm shares hit the upper circuit and closed nearly 5 per cent higher at Rs 427.95 on the BSE on 26 February.

Since then, under the vigilant eye of the RBI, Paytm Payments Bank has embarked on a massive board overhaul, aiming to navigate through its current regulatory turmoil.

While Sharma relinquished his role as part-time non-executive chairman and board member, the payments bank has ushered in four new members, all former bankers or senior bureaucrats, to steer the institution through its challenges.

This restructuring follows a series of board exits amid the regulatory crackdowns earlier this year, involving non-compliance with KYC norms and other supervisory concerns.

The newly constituted board, which includes seasoned individuals such as former Central Bank of India chairman Srinivasan Sridhar and retired IAS officers Debendranath Sarangi and Rajni Sekhri Sibal, faces a daunting task ahead. Amidst RBI restrictions and an ongoing Enforcement Directorate investigation for alleged FEMA violations, the board must swiftly address compliance issues to regain regulatory favour.

However, while the new board aims to resolve compliance issues and restore the bank's stature, they face a tight deadline of 17 days to rectify problems that persisted under Vijay Shekhar Sharma's tenure. Although such a feat may seem improbable within such a short timeframe, observers are keen to see the steps initiated by the new leadership to bring the bank back into the good graces of the RBI.

There are also plans for the bank to resume its loan business in March.