Why Samir Arora thinks Paytm Payments Bank trouble is not a corporate governance issue

While Paytm faces its biggest crisis after the Reserve Bank of India (RBI) ordered its banking unit Paytm Payments Bank to stop accepting fresh deposits from March, market expert Samir Arora believes that it is a problem but it is unlikely that it’s a corporate governance issue.

Arora, Helios Capital’s founder and fund manager on February 2 told CNBC-TV18, “We own it (Paytm stock), so I won't talk much about it. But, in general, I think this has more to do with the fact that Paytm Bank is supposed to be an independent entity with independent management, and independent control. And they felt supposedly that they had common, maybe top management and common policies, rather than the bank being managed independently.”

His remarks come after the RBI on January 31 barred Paytm Payments Bank from accepting deposits or top-ups in any customer account, prepaid instruments, wallets, and FASTags, among others after February 29, 2024. Till then, customers can add money as well as withdraw money from the Paytm wallet and PPBL account.

Arora explained that from RBI’s point of view, it might be that the bank is being regulated but fintech is not being regulated. So, these two have to be completely different. “If that is the case, it is still manageable. But if it is something more than that, then it would be bad,” he said.

He, however, doesn’t think it is a corporate governance issue. Mostly corporate governance means that the top management or the management is trying to take advantage of minority shareholders. Here, if the management itself just bought the stock from the Chinese a few months ago, it can’t be called a corporate governance issue because when one is dealing in a regulated business there might be an issue. It is not a fraud. Corporate governance looks a bit higher version than this, the market expert explained.

Meanwhile, earlier in the day, Paytm’s Chief Executive Officer Vijay Shekhar Sharma asserted that there’s a solution to every problem.

“To every Paytmer, Your favourite app is working, will keep working beyond 29 February as usual. I, with every Paytm team member, salute you for your relentless support. For every challenge, there is a solution and we are sincerely committed to serve our nation in full compliance. India will keep winning global accolades in payment innovation and inclusion in financial services - with PaytmKaro as the biggest champion of it,” he wrote in a post on X (formerly Twitter).

Paytm CEO Sharma’s remarks come after the central bank on January 31 barred Paytm Payments Bank from accepting deposits or top-ups in any customer account, prepaid instruments, wallets, and FASTags, among others after February 29, 2024. Till then, customers can add money as well as withdraw money from the Paytm wallet and PPBL account.

The founder has earlier said that the RBI order is a "big speed bump" and shared that he could not understand the trigger for the move. The company sees an impact of ₹300-500 crore on its annual operational profit.

Following the move, multiple brokerages including Jefferies, JPMorgan, CLSA, JM Financial and Axis Capital have downgraded the stock hit a 20% lower circuit at ₹487.05, which is just slightly above its all-time low of ₹441.05.