The Enforcement Directorate (ED), India’s financial crime-fighting agency, is probing if Paytm and its payments bank violated foreign exchange rules, according to two senior government sources.
What are the allegations?
The sources, who spoke to Reuters on condition of anonymity, did not specify which provisions of the Foreign Exchange Management Act (FEMA) were being investigated. FEMA regulates individual and corporate transfers overseas and imposes penalties for violations.
The ED has also written to the Reserve Bank of India (RBI) to seek data relating to transactions by Paytm’s platforms, one of the sources said.
“We have asked the RBI to share details of the transactions and the nature of the violations, if any, by Paytm and its payments bank,” the source said.
How did Paytm respond?
Paytm, which is run by One 97 Communications, denied any wrongdoing and said that no overseas remittances could be initiated from its bank accounts or wallets.
A spokesperson for Paytm said that allegations regarding FEMA violations were “unfounded and factually incorrect”.
“We vehemently deny any speculations on alleged FEMA violations by One 97 Communications or its associate Paytm Payments Bank,” the spokesperson said via email.
“The licence for payments banks restricts them from conducting operations related to outward remittances, which are exclusively permitted for large commercial banks in India.”
The spokesperson also said that Paytm was fully compliant with all the regulatory norms and had always cooperated with the authorities.
What is the background?
The ED probe comes after the RBI ordered Paytm Payments Bank to wind down most of its businesses, including deposits, credit products and its popular digital wallets, by Feb. 29.
The RBI had found that Paytm Payments Bank had violated several norms, including onboarding customers without proper verification, outsourcing its core functions to its parent company and holding excess deposits.
Paytm Payments Bank is one of the few entities in India that have been granted a licence to operate as a payments bank, which can offer basic banking services but cannot lend money or issue credit cards.
Paytm is also one of India’s most valuable startups, backed by investors such as SoftBank, Alibaba and Berkshire Hathaway. It has over 300 million users and offers a range of services, including e-commerce, gaming, insurance and mutual funds.
Vijay Shekhar Sharma, the founder and CEO of Paytm, had said that the RBI action was a temporary setback and that he was confident of resolving the issues soon.
“We are working closely with the RBI to address their concerns and we hope to resume our full operations as soon as possible,” he had said in a statement last week.