No Respite For Paytm Despite Vijay Shekhar Sharma Meeting RBI, FM Nirmala Sitharaman; Why Startup Honchos Are Rallying For Paytm Urging Rollback Of Sanctions Despite Serious Allegations Such As Money Laundering, KYC Flouting And Multiple Accounts Linked To Same Pan?

In a significant setback for Paytm and its banking services, the Reserve Bank of India has declined to intervene in the ongoing predicament by offering concessions to the company.

The decision follows a meeting between the company’s co-founder, Vijay Shekar Sharma, and officials from the central bank aimed at mitigating the situation.

Previously, the central bank disrupted the operations of the entity by halting its banking services due to detected irregularities.

In response to the recent RBI ruling to terminate Paytm’s nodal accounts after February 29, One97 Communications Ltd (OCL), the parent company of Paytm, has announced a strategic shift, signalling a departure from reliance on Paytm Payments Bank Ltd (PPB).

With the deadline looming for migrating nodal accounts from Paytm Payments Bank, Paytm now faces a future where it may need to operate without its banking arm.

The once-promising startup boasts over 3 crore merchants on its platform, with approximately 20 per cent, or nearly 60 lakh, utilizing PPBL as their settlement account. It is also the sponsor bank for most UPI addresses on the Paytm app, technically known as the payment service provider (PSP bank).

The Revival
Paytm shares surged by 9% following Vijay Shekhar Sharma’s meeting with RBI and Finance Minister Nirmala Sitharaman, despite concerns raised suggesting the likelihood of a formal probe by the Directorate of Enforcement (ED) into money laundering and KYC violations at the Noida-based firm.

After three days of continuous declines triggering lower circuits and resulting in a 42% stock crash, Paytm shares closed 3% higher yesterday.

Currently, investor sentiment regarding regulatory challenges and the ability of India’s fintech poster boy to address them is the primary driver of Paytm’s share performance.

The Ludicrous Startup Founders Gang
Meanwhile, as per reports, a collective of Indian startup founders has penned a letter addressed to Prime Minister Narendra Modi, Finance Minister Nirmala Sitharaman, and the Reserve Bank of India, urging a reconsideration of recent sanctions imposed on Paytm and advocating for constructive dialogue within the Fintech community.

The letter apparently bears the signatures of at least a dozen founders.

Among the signatories are prominent names such as Murugavel Janakiraman of Bharat Matrimony, Deepak Shenoy of CapitalMind, Ritesh Malik of Innov8, Vishal Gondal of GOQii, Yashish Dahiya of PB Fintech, and Rajesh Magow of MakeMyTrip.

Point to be note here – shares of PB Fintech Ltd, the parent company of Policybazaar and Paisabazaar, experienced a significant 5% decline in Tuesday’s trading session following a media report indicating potential income tax assessment proceedings against the online insurance aggregator.

The report referenced a statement from a senior government official highlighting regulatory concerns regarding know your customer (KYC) non-compliance issues within PB Fintech.

The income tax department reportedly conducted a survey regarding these matters, citing regulatory lapses.

Specifically, income tax officials visited Paisabazaar Marketing and Consulting Private Limited (Paisabazaar), a wholly-owned subsidiary of PB Fintech, on December 13 and December 14 of the previous year to inquire about certain vendors associated with Paisabazaar.

PB Fintech, in a statement, said it has cooperated with the authorities by providing the necessary information during these visits and has expressed its commitment to continue furnishing any additional details or information required by the income tax department.

Now, coming back to the founders rallying for Paytm, while Janakiraman and Shenoy have confirmed their signatures, others have yet to respond to requests for confirmation.

The Response
However, the letter has received a tepid response from the broader Indian fintech and startup ecosystem, with several founders stating they chose not to participate, viewing the issue as specific to Paytm and preferring not to antagonize the regulator.

One unicorn founder, who abstained from signing the letter, commented, “The regulator (RBI) doesn’t like to be backed into a corner,” indicating concerns about potential repercussions.

The founders’ letter expresses concerns about the RBI’s recent regulatory actions against Paytm Payments Bank, highlighting potential negative impacts on the entire fintech ecosystem.

The letter argues that such stringent measures against prominent fintech players like Paytm could create an impression of inconsistency and unpredictability, potentially deterring investors and innovators from engaging in the Indian market.

The founders call for a review of the RBI’s regulatory directives, a reasonable timeframe for Paytm Payments Bank to address identified deficiencies, and an open dialogue and collaboration between stakeholders.

This is in the aftermath of reports suggesting that the Enforcement Directorate (ED) might investigate Paytm Payments Bank for potential money laundering charges, which the company has vehemently denied.

No One Ready
However, amid Paytm’s efforts to transition accounts from Paytm Payments Bank, several public and private sector banks are hesitant to partner with the company, seeking clarity and transparency regarding the regulatory issues.

Addressing the matter, Minister of State for Electronics and Information Technology Rajeev Chandrasekhar emphasized the RBI’s authority to regulate entities within the sector, affirming that being a fintech or tech company doesn’t exempt anyone from regulatory oversight.

The Viewpoint
The fact that several startup founders have approached the RBI, Finance Minister, and Prime Minister in the face of serious allegations like money laundering, KYC deficiencies, and potential ED charges, as highlighted in the case of Paytm, could be viewed as foolish and ill-advised for several reasons.

Firstly, it’s important to recognize the gravity of the allegations against Paytm, which involve significant regulatory violations and potential criminal activity.

In such situations, reaching out to high-level government officials may come across as an attempt to circumvent accountability rather than addressing the underlying issues.

Moreover, engaging in dialogue with regulatory authorities and law enforcement agencies would be a more prudent approach to addressing concerns and demonstrating a commitment to rectifying any wrongdoing.

Attempting to seek intervention from political figures could be perceived as an attempt to exert undue influence or pressure on the regulatory process, undermining the integrity of the investigation.

The fact that reports have surfaced referencing a statement from a senior government official highlighting regulatory concerns regarding know-your-customer (KYC) non-compliance issues within PB Fintech is in itself quite wondrous as to why the founder should be part of the ongoing intervention.

Hence, by involving top government officials, the startup founders risk drawing unwanted attention to themselves and their companies, potentially tarnishing their reputations and credibility within the industry.

It could also create the perception that they are attempting to protect their own interests at the expense of regulatory compliance and accountability.

Moreover, sending a letter signed by prominent startup founders may inadvertently imply solidarity with Paytm, regardless of the veracity of the allegations against the company.

This could further erode trust in the integrity of the startup ecosystem and raise questions about the commitment of these founders to ethical business practices.

Hence, while it’s understandable that startup founders may feel compelled to support a fellow industry player facing challenges, doing so in the face of serious allegations without proper investigation or accountability measures in place could be perceived as reckless and shortsighted.

It’s essential for entrepreneurs to prioritize transparency, compliance, and ethical conduct to maintain the integrity of the startup ecosystem and uphold trust among stakeholders and customers, who are the backbone of all businesses.