India has deferred the approval of Paytm’s 500 million rupee ($6 million) investment in its Paytm Payment Services arm, citing concerns about Chinese shareholding in the parent company, according to government officials and a document obtained by Reuters.
One 97 Communications (PAYT.NS), commonly known as Paytm, is facing increased scrutiny from India’s banking regulator and financial crime-fighting agency following the central bank’s directive to shut down its payments bank in January. Sources suggest that this additional scrutiny contributed to the deferral of approval.
Paytm had applied for government approval last year for the investment it had already made in its newly established payments gateway arm. This approval is crucial for Paytm Payment Services to obtain the payment aggregator license required for accepting online payments.
A government panel comprising representatives from India’s home affairs, finance, and industries ministries, along with input from the foreign office, must approve the investment. The involvement of the foreign office is particularly pertinent due to China-based Antfin (Netherlands) Holdings’ 9.88% stake in Paytm.
While the Ministry of Home Affairs granted approval in January, the foreign ministry rejected it citing “political grounds,” leading to the decision’s deferral, as per officials and the document.
Concerns over the entity’s Chinese ownership have been paramount for the government, which exercises oversight over all investments originating from or involving Chinese shareholders.
Paytm could face penalties for seeking approval after making the investment, as indicated in the document, although the exact amount was not specified.
Responding to Reuters’ inquiries, Paytm stated, “We have received no communication that the investment proposal has been deferred or that a penalty is proposed to be imposed.” The company further refuted claims of deferral due to lack of clarity on Chinese holdings or impending penalties, branding such assertions as “false and misleading.”
Despite repeated attempts, India’s foreign, home, finance, and industries ministries refrained from providing comments on the matter.
The duration of the deferral and the requirements for securing approval remain unspecified, leaving Paytm in limbo.
Paytm Payment Services accounted for a significant portion of Paytm’s consolidated revenue from operations in 2022/23, according to its latest annual statement.
The need for a payment aggregator license emerged after regulatory directives mandated the transfer of Paytm’s payment business to an independent legal entity, namely Paytm Payment Services.
Should approval for the investment be withheld, Paytm may need to withdraw the funds from Paytm Payment Services, according to sources familiar with the matter.