Paytm receives SEBI warning over unapproved transactions

Fintech major Paytm has received an administrative warning from the Securities and Exchange Board of India (SEBI) regarding its certain transactions with Paytm Payments Bank Limited in FY22, an exchange filing shows. In its response, Paytm says the fintech player has "consistently complied" with regulations and that this warning will have "no impact" on its financials and operations.

The market regulator identified non-compliance issues in the financial disclosures by One 97 Communications Limited (OCL) and its associate, Paytm Payments Bank Limited (PPBL).

“The excess related party transactions entered into by the company with PPBL during the FY 2021-22 is without due approval of either the audit committee or the shareholders,” read the SEBI warning letter sent through email. While Paytm argued these transactions didn't qualify as RPTs, the Board and Audit Committee deemed them material RPTs.

While an amount of ₹985 crore was approved for ‘availing of services by OCL from PPBL’, the company transacted ₹1309 crore. Similarly, the company under the RPT proposed between OCL and PPBL of the nature ‘rendering of services by OCL to PPBL’ transacted a total amount of ₹1086 crore when only ₹1050 crore was approved. This meant a total of ₹360 crore were transacted without approval.

“The above violations have been viewed very seriously. You are, therefore, warned to be careful in future and improve your compliance standards to avoid recurrence of such instances in future, failing which appropriate enforcement action would be initiated by the law,” the letter added.

Under the violation of various regulations of SEBI’s Listing Obligations and Disclosure Requirement Regulations, 2015, the regulator advised the company to place the letter before its Board of Directors, take necessary corrective action regarding the matter and submit a report about the same to SEBI within 10 days.

Paytm informed the exchanges that it remains committed to upholding the compliance standards and will submit its response to SEBI.

An adverse impact of the SEBI warning can be seen in the stock price of the company. One97 Communications stock dipped 1.74% today and is currently trading at ₹461.50 on the NSE.

In January this year, the RBI restricted Paytm Payments Bank from accepting new deposits in its accounts and wallets. As a result, Paytm transitioned its core payment business from PPBL to other partner banks as the National Payments Corporation of India (NPCI) permitted the company to participate in UPI as a third-party application provider (TPAP) under a multi-bank model.

For the fourth quarter of FY 23-24, the company’s loss widened to ₹550 crore, compared to ₹167 crore in the same quarter in the previous fiscal year.