Paytm Payments Bank mess: Should the blame fall on the independent directors?

The Paytm management, led by Vijay Shekhar Sharma, asserts an arm's length relationship between One 97 Communications Limited, the parent company of the popular Paytm app, and Paytm Payments Bank. Their position is that this separation is by design and structure, as the two entities operate independently to adhere to banking governance standards.

But the fact is that Vijay Shekhar Sharma is the part-time Chairman of Paytm Payments Bank. Bhavesh Gupta, presently the CEO of lending and offline payments at Paytm, serves as a Director on the bank's board. Similarly, Srinivas Yanamandra, Group Head of Regulatory Affairs & Policy at the parent company, is also a director at the bank. In his prior role, Yanamandra led the compliance function at the Shanghai-based New Development Bank.

In an investor call, Madhur Deora, CFO & Additional Whole Time Director at Paytm, said, "It is a tricky situation in that sense because an associate of yours has to make independent decisions. And -- but if those decisions and those actions then are found to be incomplete or wanting from the regulator, and obviously, it has reputational risk on all of us."

Deora further explained that the associated company is not an associate company in the sense that it is a bank, existing within a highly regulated space. "First and foremost, for a bank, it has to adhere to the governance expected of a bank. This means having an independent management team reporting to the Board, handling matters that must go to the committees of the Board, where only the independent directors can be involved," defended Deora.

Deora is stressing on the fact that bank's independent directors are involved with the committees of the board. The committees like bank audit and risk management are headed by independent directors.

The bank has come under the scrutiny of the Reserve Bank of India due to 'persistent non-compliances and ongoing supervisory concerns.'

One97 Communications Ltd holds 49% equity, while Sharma owns the remaining 51% in Paytm Payments Bank, classified as an associate company of the parent. Under its differentiated licensing, the RBI permits payments banks to accept current and savings deposits and offer payment products, with no lending allowed. Both entities share close business linkages.

Should the independent directors take all the blame for the Paytm Payments Bank mess?

There are five independent directors on the nine-member board of the bank. There are two public sector bankers. Arvind Kumar Jain had earlier worked as an Executive Director at Punjab & Sind Bank. Manju Agarwal worked for the country's largest bank, the State Bank of India, as its Deputy Managing Director. Two consultants, Pankaj Vaish, with close to three decades of experience with Accenture, and Shinjini Kumar, a former PWC professional who worked for Citibank, Bank of America Merrill Lynch, and also the Reserve Bank of India.

The fifth independent director, Ramesh Abhishek, is a senior bureaucrat. Surinder Chawla, MD & CEO, comes with varied experience, having worked for Standard Chartered, ABN Amro, HDFC Bank, and RBL Bank.

In fact, the bank has witnessed frequent changes at the top. Satish Kumar Gupta, who joined in October 2018, left the bank in October 2022. Gupta replaced Renu Satti, who stepped down as CEO in July 2018. Before that, Shinjini Kumar, who is now an independent director, was the CEO.

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