Paytm Struggles On as Government Holds Off on Investing in Paytm Payment Services

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Three points you will get to know in this article:

  • Approval for Paytm’s INR 50 crore investment in its subsidiary postponed.
  • Concerns arise over China-based Antfin’s ownership stake.
  • Regulatory scrutiny from RBI and Directorate of Enforcement cited.

Postponement of Paytm's Investment Approval

The approval for fintech giant Paytm’s INR 50 crore investment in its subsidiary Paytm Payment Services Ltd has been postponed by the authorities. This delay stems partly from concerns regarding the ownership stake held by China-based Antfin (Netherlands) Holdings in Paytm’s parent company.

Antfin (Netherlands) Holdings currently possesses a 9.88% ownership interest in One 97 Communications, the parent entity of Paytm.

Government Scrutiny and Foreign Ministry's Response

According to a report from Reuters, a government committee consisting of representatives from India’s home, finance, and industries ministries is responsible for green-lighting Paytm’s investment in its payment services division. The involvement of the foreign office is warranted due to Antfin’s ownership position within the company. According to a report from a news agency referencing official documents, the Ministry of Home Affairs greenlit an investment in Paytm Payment Services back in January. However, the proposal was turned down by the foreign ministry on “political grounds,” causing the government to delay its decision.

Regulatory Attention and Speculation Dismissal

Furthermore, another insider revealed that the government has expressed apprehensions about the Chinese ownership of the entity. Consequently, there’s a heightened scrutiny on investments originating from China or those involving Chinese stakeholders.

“It’s worth mentioning that Paytm has caught the attention of both the Reserve Bank of India (RBI) and the Directorate of Enforcement (ED) due to the central bank’s directive to shut down operations of Paytm Payments Bank back in January. According to a report by Reuters, this could also contribute to the delay.

In the meantime, in a blog post released on Tuesday (April 16), Paytm clarified that the company hasn’t been notified about any delay or fines.

“The suggestion otherwise is completely baseless and misleading,” the post emphasized.

According to a spokesperson from Paytm, the information from the source seems to be based on speculation, as the government has always been supportive of fintech initiatives. We have been diligently providing all requested information during the application process, with no signs of rejection or penalties. It is crucial to support Paytm as a domestic entity in line with the government’s vision, as this will empower Indian companies to compete internationally and advance in technology.

Emphasizing Domestic Leadership and Compliance

The company proudly affirmed that its visionary leader, CEO Vijay Shekhar Sharma, hails from India and holds the largest stake in One 97 Communications Ltd (OCL), making him the sole significant beneficiary.

Furthermore, the company emphasized that all key players, including executives and board members, are Indian nationals. Notably, Antfin does not hold any board representation or special privileges within the company. It’s important to note that the creation of PPSL (Paytm Payments Services), the transition of online payment operations, and the investment of INR 500 Mn were executed in alignment with RBI regulations.

Back in November 2020, Paytm Payments Services tossed their hat into the ring, sending over an application to the RBI in hopes of snagging a license to operate as a payment aggregator. Fast forward to November 2022, and the central bank wasn’t quite ready to give them the thumbs up. They politely declined Paytm’s application, kindly nudging them to tweak things up a bit to meet the FDI rules.

Engagement with Regulatory Authorities

Following that, Paytm decided to take matters into their own hands, reaching out to the Indian government. They wanted to square away any previous investment moves made by One 97 Communications into Paytm Payments Services. It was all about dotting the i’s and crossing the t’s, making sure they were playing by the FDI rulebook.

“In order to provide further clarification, Paytm stated in the blog post that the investment of INR 500 Mn came from OCL’s existing cash reserves and no Chinese capital was raised by OCL following the introduction of Press Note 3 of 2020. Additionally, the INR 500 Mn was the capital needed to adhere to RBI’s minimum net worth regulations and to fund the cash requirements of PPSL.”

The delayed approval for Paytm’s INR 50 crore investment in its subsidiary, Paytm Payment Services Ltd, is influenced by concerns over the ownership stake held by China-based Antfin (Netherlands) Holdings. Issues include regulatory scrutiny from the Reserve Bank of India (RBI) and the Directorate of Enforcement (ED) due to the directive to shut down Paytm Payments Bank. Paytm has strategically engaged with the Indian government, emphasizing compliance with FDI rules and adherence to RBI regulations. The company, highlighting its domestic leadership and adherence to regulatory standards, clarifies that the INR 500 Mn investment aligns with Press Note 3 of 2020 and fulfills RBI’s minimum net worth regulations.

Neha Kamath

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