Former Central Bank of India Chairman Srinivasan Sridhar, retired IAS officer Debendranath Sarangi, former Executive Director of Bank of Baroda Ashok Kumar Garg, and another retired IAS Rajni Sekhri Sibal have joined the PPBL Board as independent directors.

Sharma’s exit is part of reconstituting the Board of the payments bank ahead of a March 15 deadline set by the RBI for customers as well as merchants of Paytm Payments Bank to shift their accounts to other banks. The retired bureaucrats and veteran bankers have been roped in to salvage the company and steer it back on track.

However, mere reshuffling of the board does little to address the deep-seated governance issues plaguing the company. PPBL's attempt to showcase independence through the appointment of retired bureaucrats and banking officials to its board is an attempt to salvage its reputation amidst regulatory scrutiny.

Despite these cosmetic changes, the fundamental problem remains: the intertwining of ownership, management, and governance, with the Founder wielding disproportionate influence. This lack of separation of powers is a regulatory red flag around corporate governance norms. In the Payments bank, the parent entity -- PayTM owns 49 per cent of PPBL and the remaining 51 per cent is owned by PayTM's founder in his individual capacity.

The precarious situation facing PPBL, with its very existence hanging in the balance due to RBI restrictions, underscores the gravity of the situation. While the decision ultimately rests with the RBI, it is evident that PayTM's half-hearted attempts at reform are too little, too late.

It is essential for PayTM to undertake genuine structural reforms, including the appointment of truly independent directors and the separation of key roles, if it wishes to regain the trust of regulators and stakeholders. Anything short of this would be a mere facade, indicative of a company unwilling to confront its deep-rooted governance challenges.

The founder's resignation from the board role at the payments bank may be seen as an attempt to preempt formal requests from regulators and mitigate potential embarrassment. Moreover, the appointment of reputed independent directors, albeit from banking and bureaucratic backgrounds, is another endeavour to portray the payments bank as independently-managed. This move serves as an appeal to the RBI to preserve the license, albeit against a backdrop of heightened regulatory scrutiny. It makes one wonder how will these independent experts be different from the previous independent experts on the Board ?

For the Payments Bank to retain its operating license, the RBI must grant significant leeway to enable continued access to the banking system. However, recent actions by the RBI, such as allowing migrations of settlement accounts and transfer of UPI handles, suggest an unwavering stance.

The RBI Governor's unequivocal statement during a press conference reinforces this message: there will be no reconsideration of supervisory actions. This is an indication that related party transactions and board governance will face heightened scrutiny from regulators.

Why Is It Too Little?

The governance issue extends beyond the PayTM payments bank alone; it permeates the listed entity as well. The regulator's concerns regarding related party matters have persisted for an extended period. Furthermore, the blurred lines between management, governance, and ownership, converging onto a single individual, are deeply unsettling for any regulator.

The recent reforms, purportedly introduced with the induction of a new advisory panel of experts, ring hollow when considering the founder's retention of both the chairman and MD roles in the parent entity. This perpetuates the longstanding governance issues and reinforces the concentration of power within the founder, rendering these reforms mere optics, at least for the time being.

However, to give credit where it's due, this behaviour mirrors the prevailing norm among the majority of the top 500 listed entities in India. Owner families often perceive the consolidation of roles as their prerogative, stemming from their perceived entrepreneurial risk-taking ability.

Despite the rhetoric of new-age thinking espoused by many tech startups, they exhibit no discernible departure from the practices of traditional Indian 'Lala' companies. Consequently, these purported reforms appear to be too little, too late to address the systemic governance deficiencies plaguing the industry.

(The author is a Mumbai-based independent markets commentator, and has no linkages with Paytm or its competition)