SUMMARY
While the home ministry approved Paytm’s investment in Paytm Payment Services, the foreign ministry rejected the proposal citing “political grounds”
As per a report, the decision was taken due to concerns about China-based Antfin (Netherlands) Holdings’ shareholding in Paytm parent One 97 Communications
Paytm said it has not received any communication suggesting a deferral or penalties and “any notion to the contrary is completely unfounded and misleading”
The Centre has reportedly deferred the approval of fintech giant Paytm’s $6 Mn (INR 500 Cr) investment in its arm Paytm Payment Services Ltd, partly due to concerns about China-based Antfin (Netherlands) Holdings’ shareholding in its parent entity.
Antfin (Netherlands) Holdings owns a 9.88% stake in One 97 Communications, the parent company of Paytm.
As per a Reuters report, a government panel comprising representatives of India’s home, finance and industries ministries must approve the investment of Paytm in its payment services arm, with input from the foreign office due to Antfin’s shareholding in the company.
Citing a document and sources, the news agency said the Ministry of Home Affairs approved the investment in Paytm Payment Services in January. However, the foreign ministry rejected the proposal citing “political grounds”, which led to the government deferring its decision.
Another source said that the entity’s Chinese ownership has been a concern for the government, hence the latter is looking to approve all investments coming from the country or made in companies that have Chinese shareholders.
It is pertinent to note that Paytm is already under the scanner of the Reserve Bank of India (RBI) and the Directorate of Enforcement (ED) after the central bank ordered it to wind down operations of Paytm Payments Bank in January. As per the Reuters report, this could also be another reason for the deferral.
Meanwhile, in a blog post published on Tuesday (April 16), Paytm said that the company has not received any communication suggesting a deferral or penalties.
“Any notion to the contrary is completely unfounded and misleading,” the post noted.
“The source-based information appears speculative, as the government has consistently championed fintech initiatives. The ongoing application process has seen us promptly provide the requested information, with no indication of rejection or penalties involved. Aligning with the government’s vision, supporting Paytm as a homegrown entity is pivotal for empowering Indian companies to compete globally and drive technological advancements,” said a Paytm spokesperson.
The company said that its founder CEO Vijay Shekhar Sharma is an Indian citizen and the largest shareholder and sole significant beneficial owner of One 97 Communications Ltd (OCL).
“All KMPs (key managerial personnel) and board members of OCL are of Indian origin, with Antfin having no Board representation or special rights. As clarified, the formation of PPSL (Paytm Payments Services), transfer of online payments business, and the investment of INR 500 Mn were undertaken to comply with RBI’s regulations,” the company added.
In November 2020, Paytm Payments Services submitted an application to the RBI for a licence to operate as a payment aggregator. In November 2022, the central bank declined the company’s application and instructed the company to resubmit its application to ensure compliance with the FDI rules.
Later on, Paytm made an application to the Indian government regarding past downward investment from One 97 Communications into Paytm Payments Services. This action was taken to ensure compliance with the FDI rules.
“To clarify, the investment of INR 500 Mn was made from the OCL’s existing cash reserves and no Chinese capital was raised by OCL after the introduction of Press Note 3 of 2020. Further to add, the INR 500 Mn was the capital required to comply with RBI’s minimum net worth rules and fund the cash requirements of PPSL,” Paytm said in the blog post.
”As per our stock exchange filing dated March 26, 2023, the regulator granted PPSL an extension and requested a resubmission, to which PPSL complied promptly. During the pending process, PPSL was allowed to continue with its online payment aggregation business for existing partners without onboarding any new merchants,” Paytm added.
The Reuters report suggested that if the approval of the investment is withheld, Paytm would have to withdraw the funds from Paytm Payment Services.
Shares of Paytm ended today’s trading session 0.5% higher at INR 391.35 on the BSE.
