Brace yourself for the untold story of Paytm’s FDI scrutiny. Discover the latest developments, regulatory hurdles, and potential outcomes that could reshape the financial landscape.
Scrutiny on Foreign Investment
Reports from PTI suggest that an inter-ministerial committee is currently delving into the matter of foreign investment from China in Paytm Payments Services Ltd (PPSL), a subsidiary of One97 Communications Ltd, the parent company of Paytm.
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Background: The Application and Rejection
In November 2020, PPSL applied for a license with the Reserve Bank to operate as a payment aggregator. However, the RBI rejected the application in November 2022, directing PPSL to reapply in line with Press Note 3 under FDI rules.
With One97 Communications Ltd (OCL) having investment from the Chinese firm Ant Group Co., OCL sought to address the past downward investment into PPSL to comply with FDI guidelines. This led to an application to the Indian Government on December 14, 2022.
The inter-ministerial committee is currently scrutinizing investments from China in PPSL, aiming to make a well-informed decision on the Foreign Direct Investment issue after careful consideration and examination.
Regulatory Framework: Understanding Press Note 3
Press Note 3 mandates prior approval for foreign investments from countries sharing land borders with India, as a measure to prevent opportunistic takeovers of domestic companies post-COVID-19. These countries include China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan.
A spokesperson clarified that PPSL had applied for an online Payment Aggregator (PA) license for online merchants. They emphasized that it’s a standard procedure for every applicant to obtain Foreign Investment approval.
The spokesperson highlighted changes in the ownership structure, with the founder remaining the largest stakeholder. Ant Financial reduced its stake in OCL to less than 10% in July 2023, resulting in a shift in beneficial ownership.
Regulatory Action: RBI’s Intervention
Recently, the Reserve Bank 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 after February 29, 2024. This action followed concerns raised in a comprehensive system audit report by external auditors, indicating persistent non-compliance.
Bhaarat Bulletin’s Shikha Rai, Bimal Dev, and Paytm have contributed to the above report