Govt examining FDI flow from China in Paytm Payments Services

The Central Government is looking into Chinese foreign direct investment in Paytm Payments Services Ltd (PPSL), according to sources quoted on Sunday. PPSL is One97 Communications Ltd’s payment aggregator company, which has received financing from Chinese firm Ant Group Co.

In November 2020, PPSL applied for a payment aggregator licence from the Reserve Bank of India (RBI) in accordance with the Payment Aggregators and Payment Gateways Regulation Guidelines. However, in November 2022, the RBI rejected PPSL’s proposal and urged the company to resubmit it in accordance with Press Note 3 under FDI guidelines.

PPSL then filed the requisite application with the Government of India on December 14, 2022, for One97 Communications Ltd’s (OCL) previous downward investment in the company in order to comply with Press Note 3 of the FDI guidelines.

An inter-ministerial group is currently evaluating Chinese investments in PPSL, and a decision on the FDI problem will be made after careful consideration and examination, according to sources.

Under Press Note 3, the government made prior approval required for foreign investments in any industry from countries that share land borders with India in order to prevent opportunistic takeovers of Indian companies. China is one of the countries that share a geographical boundary with India.

According to a Paytm spokeswoman, PPSL applied for an online Payment Aggregator (PA) application for online merchants, and the regulator later required PPSL to seek approvals for previous downward investments and resubmit the application.

“This is part of the regular process where everybody applying for a payment aggregator licence has to get FDI approval,” a representative for the department stated.

The representative stated that PPSL followed the necessary guidelines and submitted all essential documentation to the regulator within the timeframe specified. During the ongoing process, PPSL was permitted to continue its online payment aggregation business for existing partners without onboarding any new businesses.

“Since then, the ownership structure has altered. The Paytm founder remains the company’s largest stakeholder. Ant Financial lowered its interest in OCL to less than 10% in July 2023. As a result, it does not meet the requirements for beneficial corporate ownership. The founding promoter of OCL now has a 24.3% stake,” according to the spokesperson.

China’s Alibaba made significant investments in Vijay Shekhar Sharma’s Paytm, but its stake has since dwindled. Alibaba sold its remaining interest in Paytm in February last year in a block sale for around 13.78 billion rupees ($167.14 million). Alibaba.com Singapore E-Commerce Pvt Ltd sold 21.4 million shares of Paytm for 642.74 rupees each.

According to NSE statistics, in January 2023, Alibaba sold around 3% of Paytm for $125 million, reducing its shares from 6.26 percent.

On January 31, the Reserve Bank prohibited Paytm Payments Bank Ltd (PPBL), an OCL affiliate company, from collecting deposits or top-ups in any customer account, prepaid instrument, wallet, or FASTag, among others, after February 29, 2024.

The central bank stated that the move was made in response to continuous noncompliance and ongoing material supervisory concerns at PPBL, which necessitated additional supervisory action.

The RBI‘s ruling caused a massive sell-off of Paytm stocks, which fell more than 40% in three days. In March 2022, the RBI prohibited PPBL from onboarding new clients with immediate effect.