The Indian government is scrutinizing foreign direct investment (FDI) from China in Paytm Payments Services Ltd (PPSL), the payment aggregator subsidiary of One97 Communications Ltd (OCL), as part of ongoing regulatory compliance measures, according to sources.
PPSL, which sought a license from the Reserve Bank of India (RBI) in November 2020 to operate as a payment aggregator, faced a setback when its application was rejected by the RBI in November 2022. The central bank instructed PPSL to reapply in compliance with Press Note 3 under FDI rules. Notably, OCL has received investments from the Chinese firm Ant Group Co.
In response, PPSL submitted the necessary application to the Government of India on December 14, 2022, regarding past downward investments from OCL, aiming to align with the FDI guidelines outlined in Press Note 3.
An inter-ministerial committee is currently scrutinizing investments originating from China in PPSL, with a decision expected following comprehensive deliberation and examination of relevant aspects.
Press Note 3 mandates prior approval for foreign investments from nations sharing a land border with India, a measure aimed at safeguarding against opportunistic takeovers of domestic firms, particularly in the wake of the COVID-19 pandemic. Countries sharing land borders with India include China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan.
A spokesperson from Paytm clarified that PPSL’s application for a payment aggregator license necessitated compliance with FDI regulations, a standard procedure for all applicants. The spokesperson affirmed PPSL’s adherence to regulatory guidelines and timely submission of requisite documents to the regulator.
During the ongoing process, PPSL has been permitted to continue its online payment aggregation business for existing partners, albeit refraining from onboarding new merchants.
Regarding changes in ownership structure, the spokesperson highlighted that the founder of Paytm remains the largest stakeholder in the company, while Ant Financial reduced its stake in OCL to less than 10 percent in July 2023. Consequently, it no longer qualifies for beneficial ownership status, with the OCL founding promoter now holding a 24.3 percent stake.
In a separate development, the RBI recently imposed restrictions on Paytm Payments Bank Ltd (PPBL), an associate company of OCL, prohibiting certain transactions effective from February 29, 2024. This action followed comprehensive system audits and compliance validation reports, revealing persistent non-compliances and material supervisory concerns.
The regulatory measures underscore the government’s commitment to ensuring compliance with FDI regulations and safeguarding the integrity of the financial sector amid evolving market dynamics.