SEBI Issues Administrative Warning to Paytm Over Compliance Failures

Nitin Konde

Jul 16, 2024 — 3 min read

SEBI Issues Administrative Warning to Paytm

As a result of unapproved related party transactions of INR 324 crore and INR 36 crore with Paytm Payments Bank (PPBL) in FY 2021-22, One 97 Communications (OCL), the parent company of Paytm, was warned by SEBI. Noncompliance was highlighted in the letter dated July 15, 2024. When responding to SEBI's concerns, Paytm emphasised that it follows SEBI Listing Regulations, maintains high standards, is transparent, and confirms that there would be no financial impact.

In the letter, it was said that the company would also provide a response to SEBI and that it would adhere to the highest compliance standards.

There were certain non-compliances found during the examination, according to SEBI. The company and its subsidiaries engaged in excessive related party transactions (RPTs) with PPBL in FY 2021-22 without obtaining the necessary clearance from the audit committee or the shareholders.

Transactions between OCL subsidiaries and PPBL did not qualify as RPTs during FY 2021-22, and the company claimed that it had provided a cumulative numerical value of the transactions with PPBL for shareholders to reference.

Nevertheless, these transactions were deemed material RPTs by the company's Board and Audit Committee, which resolved that RPTs involving PPBL would remain within the specified limitations.

Paytm Going Through Trouble Waters

Just days ago, news broke that Japanese internet investor SoftBank lost $150 million in the first quarter of the current fiscal year when it allegedly pulled out of ailing financial firm Paytm.

Since February, when the Reserve Bank of India (RBI) announced restrictions on Paytm Payments Bank, the stock price of Paytm has been under pressure. As a result, Paytm's net loss in Q4 FY24 increased to INR 550.5 crore, from INR 167.5 crore in the corresponding period of the previous year, which was a threefold rise. The company also had a 2.9% year-on-year decline in revenue to INR 2,267.10 crore during the quarter.

Paytm affirmed its dedication to the highest compliance standards in a filing with the stock exchange and promised to respond in detail to SEBI's concerns about the issue.

Paytm has reassured its stakeholders that the monetary, operational, or any other aspect of its business will be unaffected by this administrative warning. In response to SEBI's concerns, the company is enhancing compliance standards and taking other measures to ensure this doesn't happen again.

From Highs to Lows: Paytm's Compliance Problems and RBI Scrutiny

In India, the digital revolution began with Paytm. It eventually became the most popular payment app in India. Paytm has enabled digital payment acceptance for over 20 million merchants and companies worldwide.

However, with the implementation of strict regulations issued by the Reserve Bank of India (RBI), Paytm Payments Bank (PPBL), the brainchild and much-loved unicorn success story of India, has recently put founder and CEO Vijay Shekhar Sharma through a serious crisis.

Due to compliance problems, related party transactions, and violations of KYC (Know Your Customer) standards, the RBI slapped Paytm with a heavy fine. Worries about illicit financial dealings involving large sums of money (in the crores of rupees) prompted the intervention. Red flags were raised due to accounts that did not comply with KYC regulations and cases where the same PAN was used for many accounts.

After hundreds of thousands of accounts were discovered to have been created without sufficient identity, PPBL came under examination from the RBI, according to various media reports. Because of the suspicious activity in the PPBL accounts, the Reserve Bank of India (RBI) notified the Enforcement Directorate (ED) and other relevant government bodies.