India’s booming tech sector suffers a big blow as Byju’s and Paytm plunge into crisis

India's booming tech sector has suffered a major blow this year as startup darlings Byju's and a former affiliate of Paytm have been plunged into crisis amid a regulatory scrutiny.

"There's been a bit of a reality check for the last couple of years in terms of how to keep corporate governance practices up at a level which is sustainable and at a world class level," said Karan Mohla, general partner at venture capital firm B Capital Group.

Paytm Payments Bank has been mired in controversy after the Reserve Bank of India ordered the unit to stop onboarding new customers with immediate effect. Indeed, the larger fintech firm Paytm on Friday slashed some ties with the troubled banking unit in an attempt to address the compliance concerns. The banking arm isn't controlled by Paytm but has been processing much of its payments.

A subsequent audit of Paytm Payments Bank "revealed persistent non-compliances and continued material supervisory concerns in the bank," the central bank said on Jan. 31.

Starting from March this year, the banking unit was not allowed to continue accepting fresh deposits in its accounts or its digital wallet.

Yet to be profitable, the unit is also reportedly being probed by the federal anti-fraud agency on possible violations of foreign exchange laws.

On Feb. 26, One97 Communications, the parent company of Paytm, said in an exchange filing that founder and CEO Vijay Shekhar Sharma had resigned from the board of Paytm Payments Bank.

"Venture capital investors and founders have a greater responsibility to make sure that governance in the company is sound," said Ashish Wadhwani, co-founder and managing partner of IvyCap Ventures.

Byju's, India's most valuable startup at one time, is also struggling. The Indian