Govt examining FDI flow from Chinain Paytm Payments Services

 Under Press Note 3, the government had made its prior approval mandatory for for foreign investments in any sector from countries that share land border with India to curb opportunistic takeovers of domestic firms following the COVID-19 pandemic.

PTI, 11 February 2024 ; The central government is examining foreign direct investment from China in Paytm Payments Services Ltd (PPSL), sources told news agency PTI on Sunday. PPSL is the payment aggregator subsidiary of One97 Communications Ltd, which has investment from Chinese firm Ant Group Co.

In November 2020, PPSL applied for licence 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.

Subsequently, PPSL filed the required application on December 14, 2022 with the Government of India for past downward investment from One97 Communications Ltd (OCL) into the company to comply with Press Note 3 prescribed under FDI guidelines. 

Now, an inter-ministerial committee is examining investments from China in PPSL and a decision would be taken on the FDI issue after due consideration and comprehensive examination, sources told the news agency. 

Under Press Note 3, the government had made its prior approval mandatory for foreign investments in any sector from countries that share land borders with India to curb opportunistic takeovers of domestic firms. China is among the countries that share the land border with India.

A Paytm spokesperson said PPSL applied for an online Payment Aggregator (PA) application for online merchants and the regulator subsequently asked PPSL to seek necessary approvals for past downward investment and resubmit the application. "This is part of the regular process where everybody applying for a payment aggregator licence has to get FDI approval," the spokesperson told the news agency.

The spokesperson said PPSL followed the relevant guidelines and submitted all relevant documents to the regulator within the stipulated time. During the pending process, PPSL was allowed to continue with its online payment aggregation business for existing partners without onboarding any new merchants.

"Since then the ownership structure has changed. The Paytm founder remains the largest stakeholder in the company. Ant Financial reduced its stake in OCL to less than 10 per cent in July 2023. Subsequently, it does not qualify for beneficial company ownership. OCL founding promoter now holds a 24.3 per cent stake," the spokesperson said.

China's Alibaba was heavily invested in Vijay Shekhar Sharma-led Paytm but it cut its position over the years. In February last year, Alibaba sold its remaining stake in Paytm for about 13.78 billion rupees ($167.14 million) through a block deal. Alibaba.com Singapore E-Commerce Pvt Ltd sold 21.4 million shares of Paytm at 642.74 rupees apiece. 

In January 2023, Alibaba sold about 3 per cent of Paytm for $125 million, cutting its holdings from 6.26 per cent, based on the NSE data.

On January 31, the Reserve Bank barred Paytm Payments Bank Ltd (PPBL), an associate company of OCL, from accepting deposits or top-ups in any customer account, prepaid instruments, wallets, and FASTags, among others after February 29, 2024. The central bank said the move was taken after persistent non-compliance and continued material supervisory concerns in PPBL, warranting further supervisory action. 

The RBI's move triggered a heavy sell-off of Paytm stocks, which plunged more than 40 per cent in three days.  

In March 2022, the RBI barred PPBL from onboarding new customers with immediate effect.