Also in this letter:
■ Tough times ahead for fintech startups
■ Key takeaways from Budget 2024
■ Rario reverses shutdown plan
Paytm admits hypergrowth led to compliance, tech lapses
A day after the RBI effectively barred all services offered by Paytm Payments Bank, the leadership of One 97 Communications, an associate company of the bank, alluded at an analysts’ call that issues around setting up controls regarding compliance and technology could have attracted penal action by the Reserve Bank of India.
Breaking down the news: Neither the central bank nor Paytm founder Vijay Shekhar Sharma disclosed the exact reason for which the bank faced such stringent penal action. However, Sharma acknowledged during the call that quick growth vis-a-vis the multiple risk and compliance methods put in place by the bank were not to the regulator’s satisfaction.
From the horse’s mouth: “This is an opportunity for us to come out better, stronger, abler, and more capable for the regulator’s eye and we are going to make sure that we will get out of this situation,” Sharma said.
Earlier on Thursday, he wrote in a WhatsApp group of startup founders that nothing can deter them from continuing to build.
Possible reasons: Industry insiders suggested multiple likely reasons behind the harsh action. Some felt there could be issues around data security while others said the reason could be too much overlap between Paytm and Paytm Payments Bank. However, Paytm denied any data sharing between the two entities.
Lending business hit: Paytm’s lending business will be impacted as they interact with their lending partners on the situation with the bank. Paytm COO Bhavesh Gupta told stock market analysts the company will pause new origination of loans for some time, which will have an impact on its earnings.
Market reacts: Shares of One 97 Communications, the entity that operates Paytm, crashed 20% today to hit the lower circuit at Rs 608.80 on the BSE as investors started dumping the new-age stock.
RBI action on Paytm indicates tough times ahead for fintech startups
Founders, investors, and the larger fintech community are not only in a state of shock but also in alert mode as the RBI’s action against Paytm Payments Bank points towards the regulatory environment getting stricter. They took to public platforms to highlight the potential ramifications of such a move.
Huddle zone: After the RBI’s press release on Wednesday, multiple large startups went into a huddle to find out if they need to relook at their own data systems and compliance machinery, people in the know told ET.
Most of them consulted their lawyers and advisors to understand if they need to double down on their information security systems too.
Different views: “We (fintech founders) thought that a licence from the regulator means you are safe, but that is not the case, we need to be more proactive in ensuring compliance going forward,” said the founder of a large fintech startup.
“The damage is likely to be more on Paytm’s reputation and user trust which is expected to lead to a shift in market share towards other players such as PhonePe and Google Pay,” said a second founder.
Context is crucial: Industry experts said the RBI order needs to be understood in the context of the larger ecosystem and the recent actions of the regulator, not only on Paytm but on the entire sector as well.
“The RBI has been pushing up its level of scrutiny on fintech companies and the order on Paytm shows that even one of the oldest and most established fintechs can face regulatory action if it does not adhere to the highest compliance standards,” said Aparajita Srivastava, partner, Ikigai Law.
Read our full coverage here
Byju’s shareholder group calls for EGM, to vote for ouster of Byju Raveendran, board
The founder-shareholder rift at Byju’s is widening. A group of key shareholders at the troubled edtech firm has issued a notice calling for an extraordinary general meeting (EGM) to address ‘persistent issues’ including a change of management.
Driving the news: These shareholders, together holding over 30% stake in the company, will vote to oust founder and CEO Byju Raveendran and the existing board on February 23, seeking to wrest control of the once-celebrated and most valued startup of the country amid concerns about its leadership and corporate governance.
Brewing dissent: Investors have been asking Raveendran to step aside from an operating role, but this is the first instance of them issuing a statement together.
“The issuance of this EGM notice follows many months of continued efforts by shareholders to engage with the company to address persistent issues relating to corporate governance, mismanagement, and compliance,” the investor group said in a statement.
Signatories to the statement include Prosus, Peak XV Partners, Sofina, General Atlantic, Owl Ventures, the Chan Zuckerberg Initiative, and Sands Capital.
Tell me more: While acknowledging the independent advisory council’s efforts, the investor group expressed “deep concern” for Byju’s parent company’s “future stability” under the current leadership and board composition.
Former SBI chairman Rajnish Kumar and ex-Infosys CFO Mohandas Pai are part of the advisory council. Currently, founder Raveendran, his wife and cofounder Divya Gokulnath, and his brother Riju Ravindran are on board of Think & Learn–parent of the edtech company.
US unit files for bankruptcy: A unit of Byju’s has filed for Chapter 11 bankruptcy proceedings in the US court of Delaware, listing liabilities in the range of $1 billion to $10 billion, Reuters reported.
Byju’s Alpha unit listed its assets in the range of $500 million to $1 billion, according to a court filing, which showed estimated creditors in the range of 100 to 199.
Temasek sells entire holding in Policybazaar for Rs 2,425 crore
Yashish Dahiya, chairman, PB Fintech
Singapore’s sovereign wealth fund, Temasek, has yielded a return of 18 times (in rupee terms) on its investment in PB Fintech, the holding company of Policybazaar, having divested its entire 5.42% stake through open market transactions on Thursday. In US dollar terms, the investor made a return of nearly 15 times.
Data decoded: According to BSE block deals data, Claymore Investments (Mauritius), a Temasek entity, sold 24.4 million shares of PB Fintech at Rs 992.8 apiece, valuing the transaction at Rs 2,425 crore (around $292 million).
In 2015, Temasek had invested Rs 134 crore, or approximately $20 million at the time in a secondary-market transaction.
SoftBank’s exit: Technology investor SoftBank exited from PB Fintech by selling its remaining stake in a mid-December transaction for about Rs 914 crore ($109 million at current exchange rate). In total, SoftBank garnered about $650 million in returns on an investment of close to $200 million, raking in profits of about $450 million.
Returning capital to stakeholders: After booking its maiden quarterly profit, PB Fintech cofounder and chairman Yashish Dahiya told ET on January 31 that the company was looking to return a part of its capital to shareholders, either through a share buyback or dividend payments.
Budget 2024: Rs 1 lakh crore R&D corpus, tax holiday, other takeaways
Making a big push for research & development (R&D), the government announced a corpus of Rs 1 lakh crore to promote technological innovation in sunrise sectors.
Details: “A corpus of Rs 1 lakh crore will be established with a 50-year interest-free loan provided. The corpus will provide long-term financing or refinancing with long tenures and low or nil interest rates,” the finance minister said, hailing what she described as the ‘golden era’ for the country’s tech-savvy youth.
India’s share of R&D in overall GDP is much lower than that of developed countries and this announcement serves a long-standing demand of industry body Nasscom.
Tax holiday extended: The budget proposed to extend the tax incentive for startups and investments made by sovereign wealth or pension funds for one more year till March 2025. The tax holiday scheme for startups offers a 100% tax rebate to eligible startups on profits made for three years in a total time frame of 10 years of operations.
Startups with a turnover of less than Rs 100 crore are eligible for the tax incentives. The government has extended the benefits for one year in every budget since 2017.
Kalyan Krishnamurthy, CEO, Flipkart
By Invite: Foundation for ‘Viksit Bharat’: Kalyan Krishnamurthy, CEO, Flipkart group, said the interim budget holds the promise of propelling the nation towards its vision of ‘Viksit Bharat’ by 2047 — a developed India by the centenary of its independence.
“Along with this, stability in taxes and a higher tax-to-GDP ratio will pave the way for a strong foundation for growth while adhering to fiscal prudence. Higher capital expenditure will catalyse broader economic growth, generating a ripple effect in the economy,” he said.
Read our full coverage here
Other Top Stories By Our Reporters
Dream Sports-backed NFT marketplace Rario reverses shutdown plan | In a change of plan, Dream Sports-backed cricket non-fungible token (NFT) marketplace Rario has decided to continue with its existing product. The company announced on Thursday night via X that it will continue with “Rario’s current rewards program, allowing users to use their cards to play and trade on the marketplace.”
BharatPe hires Rohan Khara as chief product officer: New Delhi-based fintech firm BharatPe has hired ex-Gojek Financial Services top executive Rohan Khara as its chief product officer. Khara will be responsible for product development and innovation at the Peak XV Partners-backed startup.
Swiggy names HUL’s Ashwath Swaminathan to head growth and marketing: IPO-bound Swiggy on Thursday named former HUL executive Ashwath Swaminathan its chief growth & marketing officer. He was vice president of the oral care & deodorants business at HUL, where he had worked for over 17 years, the food-delivery firm said.
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