Government examining FDI flow from China in Paytm Payments Services amid regulatory hurdles: Report
Government scrutiny intensifies over Chinese investment in Paytm Payments Services Ltd (PPSL) as regulatory hurdles and ownership changes prompt a thorough examination, while associated entities face Reserve Bank restrictions and compliance issues.
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The government is reportedly scrutinizing Chinese foreign direct investment in Paytm Payments Services Ltd (PPSL), the payment aggregator arm of One97 Communications Ltd, following PPSL's application for an RBI license in November 2020, which was initially rejected in November 2022, prompting a resubmission to comply with Press Note 3 under FDI rules.
One97 Communications Ltd (OCL) benefits from investments by the Chinese firm Ant Group Co.
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Following this, the company submitted an application to the Government of India on December 14, 2022, seeking approval for previous downward investments from OCL into the company to adhere to Press Note 3 under FDI guidelines. A PTI report quoting sources indicated that an inter-ministerial committee is currently reviewing investments from China in PPSL, with a decision on the FDI matter expected after thorough consideration and examination.
In accordance with Press Note 3, the government mandated prior approval for foreign investments in any sector from nations sharing a land border with India, aiming to prevent opportunistic takeovers of domestic firms in the wake of the COVID-19 pandemic. Countries bordering India include China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan.
When reached for comment, a spokesperson for Paytm told PTI that PPSL had submitted an online Payment Aggregator (PA) application for online merchants. Subsequently, the regulator requested PPSL to obtain requisite approvals for previous downward investments and to resubmit the application.
"This is part of the regular process where everybody applying for a payment aggregator licence has to get FDI approval," the spokesperson said.
The spokesperson affirmed that PPSL adhered to the pertinent guidelines and furnished all necessary documents to the regulator within the specified timeframe. Throughout the interim period, PPSL was permitted to sustain its online payment aggregation operations for existing partners but was instructed not to onboard any new merchants.
"Since then the ownership structure has changed. The Paytm founder remains the largest stakeholder in the company. Ant Financial reduced its stake in OCL to less than 10 per cent in July 2023. Subsequently, it does not qualify for beneficial company ownership. OCL founding promoter now holds a 24.3 per cent stake. Therefore, your understanding of FDI from China in PPSL is incorrect and misleading," the spokesperson added.
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Last month, the Reserve Bank imposed restrictions on Paytm Payments Bank Ltd (PPBL), an affiliate of OCL, preventing it from receiving deposits or top-ups in any customer account, prepaid instruments, wallets, and FASTags, effective from February 29, 2024. The RBI's decision against PPBL comes in the wake of a thorough system audit report and subsequent compliance validation report by external auditors. The RBI highlighted persistent non-compliances and ongoing significant supervisory concerns in PPBL, prompting further supervisory measures.
On March 11, 2022, the RBI prohibited PPBL from enrolling new customers effective immediately.
