One97 Communications Ltd., the parent company of fintech giant Paytm, has been grappling with regulatory scrutiny after receiving an administrative warning from the Securities and Exchange Board of India (SEBI) concerning related-party transactions with its subsidiary, Paytm Payments Bank (PPBL).
The SEBI letter, dated July 15, 2024, flagged unauthorized related-party transactions worth ₹324 crore and ₹36 crore undertaken by One97 with PPBL during the financial year 2021-2022. These transactions, according to SEBI, lacked approval from either the company’s audit committee or its shareholders, constituting a significant compliance failing.
SEBI, emphasizing the seriousness of the violations, cautioned One97 to strengthen its compliance framework to prevent future occurrences of such unauthorized transactions. The letter mandated a response from One97 outlining corrective measures within 10 days.
One97, in a filing with the stock exchanges, maintained its adherence to SEBI regulations and commitment to upholding the highest compliance standards. The company also plans to submit a formal response to SEBI shortly. Additionally, they assured that the matter would not have a material impact on the company’s financial, operational, or other activities.
Separate Regulatory Action for Paytm Payments Bank
It’s important to note that this SEBI warning is not the only recent regulatory hurdle for Paytm. In January 2024, the Reserve Bank of India (RBI) barred PPBL from conducting banking activities due to separate compliance issues. This action by the RBI highlighted broader concerns within the Paytm ecosystem.
Market Reaction and Paytm’s Stock Performance
Despite the SEBI warning, Paytm’s share price closed 0.7% higher on July 15, 2024, at ₹469.1. This seemingly positive performance can be attributed to short-term market fluctuations. However, looking at the bigger picture, Paytm’s stock has gained only 13% in the past month. More importantly, it remains nearly 80% below its initial public offering (IPO) price of ₹2,150, a significant decline for investors who participated in the company’s much-anticipated IPO.
The SEBI warning, coupled with the earlier RBI action against PPBL, casts a shadow over Paytm’s corporate governance practices and could potentially impact investor confidence in the company’s future prospects.
