Paytm Founder Vijay Shekhar Sharma: Trust Deficit Ahead

In that viral clip, he boasted amid adoring employees that no one in India was paying them heed but the world was sitting up to take note. But, unfortunately for Sharma and Paytm, some eyes in India were on him and his Paytm—the regulatory ones.

Now, the going is getting tougher for him and One97 Communications, the parent company that owns the controversy-hit Paytm Payments Bank Limited (PPBL). Last month, Sharma, once a poster boy for India's budding fintech industry, resigned as non-executive chairman from the PPBL board.

While the move paved the way for the reconstitution of the PPBL board, Sharma will continue to be under the regulatory scanner. On January 31, the Reserve Bank of India (RBI) issued a directive barring PPBL from accepting fresh deposits from March.

The 45-year-old Sharma owns a majority stake in PPBL, set up in 2015 after the launch of Paytm or Pay through Mobile, a platform for mobile recharging. Though he launched One97 Communications in the early 2000s, Sharma's meteoric rise came after the November 2016 demonetisation. In 2017, Sharma featured in the list of Time Magazine's 100 most influential people, alongside Prime Minister Narendra Modi.

Despite several awards and recognitions that came his way, many insiders saw Sharma's fall coming. Violation of regulatory norms related to Know Your Customer (KYC) guidelines leading to frauds was not uncommon. Issues related to money laundering and cyber security had also come up.

"There were gross discrepancies and non-compliance," a person with direct knowledge said.

In 2021, the banking regulator slapped a show-cause notice on PPBL for submitting false information and, later the same year, imposed a penalty for a flouting of the Payment and Settlement Systems Act, 2007. In 2019, PPBL was pulled up by the office of the banking ombudsman for violating KYC norms pertaining to an account. In 2023, PPBL was again slapped with a penalty of Rs 5.39 crore.

"These instances should have been taken as warning signals but it seems success hit Sharma and he almost started taking things for granted," said a financial services analyst who didn’t want to be named.

Did Sharma—whose net worth, as per Forbes magazine, was estimated at US$1.2 billion in September 2022—think he would remain unaffected despite the gross regulatory glitches and warnings because of his open support to the present ruling government? Many think so.

But could taking things for granted be a misinterpretation of the (over)confidence that comes to those who achieve things on their merit and hard work? 

According to Suveen Sinha, journalist and author of the book The Tip of the Iceberg: The Unknown Truth Behind India’s Start-Ups, Sharma completed his school education at the age of 14 and secured admission into the Delhi School of Engineering merely at 15. As a Hindi-medium student, who not only trained himself to take the JEEs in English but also ranked high enough to be awarded with a special permission to take admission as an underage student, Sharma’s cockiness could be self-assurance on a bit of crack.

Sharma wrote last year, after the inauguration of the new Parliament building, "May Indian democracy shine like new parliament for years and years." He had also termed the NDA government's demonetisation move the boldest.

Why didn't things get fixed within the company despite repeated warnings and penalties? Did he think his open support for the BJP would help? Well in that case this serves as an important lesson to all startups or other entrepreneurs.

Sharma, seemingly, envisions no different for India’s startup ecosystem. At his first public appearance after the Paytm crisis, at a fintech conference in Tokyo, Sharma expressed that he appreciated the role that regulators play in fostering a healthy environment for startups. ““We have been able to very happily see our regulator engage,” he said.

If the comment was made as a result of a cheeky forbearance or in a state of remorseful modesty remains unclear.

Paytm's Troubles

Paytm's initial public offering (IPO) in 2021 was one of the most watched ones. But the IPO failed to chart a success story. In fact, Warren Buffett's Berkshire's Hathaway that invested about USD 300 million in the company in 2018 sold its entire stake in November last year.

Similarly, Softbank, another key investor, has also been gradually reducing stake in the company. In 2021, around the time the One97 Communications hit the market, Softbank held about 18.5 per cent in the company. But by January, it was down to 5 per cent. According to reports, SVF India Holdings (Cayman), an arm of the Japanese investment major, is looking to completely exit Sharma's company.

"SVF India Holdings (Cayman) Limited has disposed of an aggregate of 13,784,787 equity shares of One97 Communication Limited in a series of disposals undertaken between January 23, 2024 and February 26, 2024, with a disposal on February 26, 2024 breaching the 2% threshold specified in Regulation 29 (2) of the SEBI Takeover Regulation," the firm said in a statement.

According to brokerage firm Macquarie, Sharma, by resigning from the board, is trying to "salvage some value from Paytm Payments Bank by sending a message to the regulator that he is willing to give up control of PPBL." Following the regulatory crackdown on PPBL, the RBI has barred the bank from accepting fresh deposits from March. Needless to say that the Paytm brand value has taken a beating.

The Appeal of Vijay Shekhar Sharma

Barely a few days before the PPBL controversy erupted, a detailed article on Sharma on startuptalky.com compared the entrepreneur with former cricketer Mahendra Singh Dhoni.

"Both of them came from small towns but were full of sheer determination and passion, and eventually brought about a big change in the system. In real life, Vijay is self-effacing and has no pretensions. He speaks from the heart," the website said, adding that Sharma epitomises startup resilience.

Sinha, too, in his book, calls Sharma “warm, candid, and sincere.” He makes it a point to mention not only the large letters on Paytm’s Noida office walls that say, “We don’t need no thought control,” but also the fact that he sits not in a private cabin or a corner office but at an unremarkable desk in a line of desks. But that was the disruptor of the 2016 era.

In 2022, Sharma reportedly rammed his Land Rover into the car of the district commissioner of police (DCP) of South Delhi. No one was hurt, but Sharma was arrested, although soon released on bail.  

Regardless of what the market says, the kind of dedication Sharma displayed in his early life as a small-town boy, the ingenuity with which he built his early businesses, his unvarnished demeanour despite the peaks, and the recklessness as well as optimism in the troughs — they are all shades of his personality that have clearly appealed to the popular imagination.

Over his long career in the sunshine, Sharma has not only bagged prestigious accolades from the likes of Time and Forbes, but also has been listed alongside film stars and digital entertainment icons by GQ in their ‘GQ Men of the Year’ awards.  

Is That enough?

The March 15 deadline is approaching for PPBL to link all its existing wallets to other banks. RBI governor Shaktikanta Das has made it clear that no further extension will be granted to PPBL. In a recent interview with ET Now, Das said that while 80–85 per cent of Paytm wallets are linked to other banks, the remaining ones need to be moved as well.

He also added that the RBI’s action against PPBL was due to its consistent non-compliance and had nothing to do with the overall fintech sector. Possibly alluding to Sharma’s Land Rover incident, Das pointed out that even a person driving a Ferrari needs to follow traffic rules. 

Sharma, at his end, has been putting up a brave face. Last week, he posted a copy of an ad of his company that appeared on the front page of a national daily on X (erstwhile Twitter). "Yep! Today, tomorrow and always. #PaytmKaro," he wrote. On Tuesday, in the fintech conference in Tokyo, he voiced his plans to “make Paytm an Asia leader.”

Will Sharma come out of the current imbroglio? Even if he does, it will take a long time to rebuild the kind of trust he once enjoyed. 

Trust deficit ahead or not, however, as the Bob Dylan song goes, what is still “blowin’ in the wind” is the wildly familiar “Paytm karo” jingle in the nooks and crannies of India. Take a walk today to your street corner chai stall or keep an ear out for the street-calls of morning hawkers and you might hear it too. 

(The author is a New Delhi-based independent journalist with nearly three decades of experience in covering banking, finance and public policy. Views expressed are personal)