Paytm Payment Services Awaits Government Nod for Investment Approval

Fintech firm One97 Communications Ltd (OCL), the parent company of Paytm, announced on Monday that it has not yet received government approval for a downstream investment in its payment aggregator subsidiary, Paytm Payment Services Ltd (PPSL).

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Application for Payment Aggregator License

In November 2020, PPSL applied for a license with the Reserve Bank of India (RBI) 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 and asked the company to resubmit it to comply with Press Note 3 under FDI rules.

Government Approval for Downstream Investment

As part of the application, PPSL had also applied to the Government of India for approval of downstream investment made by the company in PPSL. This approval is still pending, and Paytm stated that it will update the stock exchanges as soon as the approval is received.

RBI's Directives and Extension

The banking regulator, RBI, asked PPSL in November 2022 to re-submit its application within 120 days after obtaining government approval on the investment made by OCL into PPSL as per FDI guidelines. RBI also instructed PPSL to continue operations with the condition that no new merchants should be onboarded.

After the completion of 120 days, RBI granted PPSL an extension but without removing the restriction on onboarding new merchants.

Press Note 3 and Foreign Investments

Under Press Note 3, the Indian government made prior approval mandatory for foreign investments in any sector from countries that share a land border with India. This measure was implemented to prevent opportunistic takeovers of domestic firms following the COVID-19 pandemic.

Countries that share land borders with India include China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan. Paytm has received significant investments from Chinese companies.

Changes in Ownership Structure

Paytm also highlighted changes in its ownership structure, with the company's founder, Vijay Shekhar Sharma, now being the sole Significant Beneficial Owner. This information was shared with the stock exchanges on September 03, 2023.

Paytm's Transactions with Antfin

In August 2023, Paytm announced that Sharma would acquire a 10.3% stake in Antfin through his overseas entity Resilient Asset Management BV. This acquisition would make Sharma the largest stakeholder in the company with a 19.42% stake.

In return, Resilient issued an optionally convertible debenture to Antfin, maintaining the economic interest of the Alibaba group firm. As a result of this transaction, Antfin's direct stake in Paytm was reduced to 13.5%. Antfin further sold 3.6% in Paytm, bringing its shareholding to less than 10%, and currently holds 9.89% of the fintech firm.