Government scrutinizing Foreign Direct Investment (FDI) influx from China into Paytm Payments Services

According to PTI, the Indian government is currently examining the foreign direct investment (FDI) originating from China in Paytm Payments Services Ltd (PPSL), the payment aggregator subsidiary of One97 Communications Ltd (OCL).

PPSL applied for a license with 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, in November 2022, RBI rejected PPSL’s application, instructing the company to resubmit it to comply with Press Note 3 under FDI rules. OCL, notably, has investment from the Chinese firm Ant Group Co.

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Following the RBI’s directive, the company submitted the required application on December 14, 2022, to the Centre regarding the past downward investment from OCL into PPSL to adhere to Press Note 3 outlined under FDI guidelines.

Currently, an inter-ministerial committee is scrutinizing investments originating from China in PPSL. A decision regarding the FDI matter is expected post due consideration and a thorough examination of all relevant aspects, according to the news agency.

The government mandates prior approval for foreign investments in any sector from nations sharing a land border with India. This measure aims to mitigate the risk of opportunistic takeovers of domestic firms post the COVID-19 pandemic.

The countries sharing land borders with India include China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan.

A spokesperson from Paytm informed the news agency that PPSL initially applied for an online Payment Aggregator (PA) application catering to online merchants. Following this, the central bank instructed PPSL to obtain requisite approvals for past downward investments and then resubmit the application accordingly.

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Throughout the pending process, PPSL was permitted to sustain its online payment aggregation operations for existing partners, refraining from onboarding any new merchants.

The spokesperson also clarified the ownership structure changes, stating that Ant Financial reduced its stake in OCL to less than 10 percent in July 2023, thereby not qualifying for beneficial company ownership. OCL’s founding promoter now holds a 24.3 percent stake.

Last month, the RBI imposed restrictions on PPSL, prohibiting it from accepting deposits or top-ups in customer accounts, prepaid instruments, wallets, and FASTags, among other transactions, effective from February 29, 2024.

The RBI’s action against PPSL follows a thorough system audit report followed by a compliance validation report conducted by external auditors.