Vijay Shekhar Sharma, CEO and Founder, Paytm | Image:Republic
Govt probe on Paytm Payments Services: The Indian government is currently scrutinising the foreign direct investment (FDI) from China into Paytm Payments Services Ltd (PPSL), a subsidiary of One97 Communications Ltd, news agency PTI reported quoting official sources.
PPSL applied for a license from the Reserve Bank of India (RBI) in November 2020 to operate as a payment aggregator under the guidelines on Regulation of Payment Aggregators and Payment Gateways. However, RBI rejected PPSL’s application in November 2022, prompting the company to resubmit it to comply with Press Note 3 under FDI rules.
One97 Communications Ltd (OCL), the parent company of PPSL, has investments from the Chinese firm Ant Group Co. Consequently, OCL applied with the Indian government on December 14, 2022, for past downward investment from OCL into the company, aiming to adhere to Press Note 3 prescribed under FDI guidelines.
An inter-ministerial committee is currently examining investments from China in PPSL, and a decision on the FDI issue will be made after thorough consideration and comprehensive examination, as per the sources.
Press Note 3 mandates the government’s prior approval for foreign investments from countries that share a land border with India to prevent opportunistic takeovers of domestic firms, especially in the aftermath of the COVID-19 pandemic. Countries sharing land borders with India include China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan.
Paytm retaliated to the report stating: “Since then the ownership structure has changed, the Paytm founder (Vijay Shekhar Sharma) remains the largest stakeholder in the company. Ant Financial reduced its stake in One 97 Communications Limited (OCL) to less than 10 per cent in July 2023.”
Subsequently, it does not qualify for beneficial company ownership. One 97 Communications Ltd founding promoter now holds a 24.3 per cent stake, the company added.
Paytm further rebuffed reports of the FDI investments from China in its payments arm, calling it “incorrect and misleading.”
In a related development, the Reserve Bank of India (RBI) recently prohibited Paytm Payments Bank Ltd (PPBL), an associate company of OCL, from accepting deposits or top-ups in any customer account, prepaid instruments, wallets, and FASTags, effective February 29, 2024.
This action by RBI comes after a comprehensive system audit report and subsequent compliance validation report by external auditors revealed persistent non-compliances and continued material supervisory concerns in PPBL.
Earlier, on March 11, 2022, RBI barred PPBL from onboarding new customers with immediate effect.
To this, Paytm responded: ”We would like to inform you that Paytm Payment Services Limited (PPSL) applied for an online Payment Aggregator (PA Application) for online merchants and the regulator subsequently asked PPSL to seek necessary approvals for past downward investment and resubmit the application. This is part of the regular process where everybody applying for a payment aggregator license has to get FDI approval.”
As per the company’s filing dated March 26, 2023, the regulator gave PPSL an extension and asked to resubmit the application. PPSL followed the relevant guidelines and submitted all relevant documents to the regulator within the stipulated time, the listed fintech added.
“During the pending process, PPSL was allowed to continue with its online payment aggregation business for existing partners without onboarding any new merchants,” the company stated.
(With PTI inputs.)