Govt defers approval of Paytm's Rs 50 cr investment in its payments arm

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India has deferred approval of Paytm's 500 million rupee ($6 million) investment in its Paytm Payment Services arm in part due to concerns about a Chinese shareholding in the parent company, according to three government officials and a document seen by Reuters.

One 97 Communications, popularly known as Paytm, is already under the scrutiny of India's banking regulator and financial crime-fighting agency after the central bank ordered it to wind down its payments bank in January. The sources indicated this was another reason for the deferral.

Paytm sought government approval last year for the investment it had already made in its newly established payments gateway arm, a necessary step for Paytm Payments Services to receive the payment aggregator licence necessary to accept online payments.

A government panel consisting of representatives of India's home affairs, finance and industries ministries must approve the investment, with input from the foreign office as China-based Antfin (Netherlands) Holdings owns a 9.88% stake in Paytm.

Although the Ministry of Home Affairs approved the investment in January, the foreign ministry rejected it citing "political grounds", according to the officials and the document, so the decision was deferred.

One source said the entity's Chinese ownership has been a concern for the government, which must approve all investments coming from the country or made in companies which have Chinese shareholders.

Since the approval was sought after making the investment, a penalty on Paytm would be imposed, the document showed, without specifying the amount.

"We have received no communication that the investment proposal has been deferred or that a penalty is proposed to be imposed," Paytm told Reuters.

"In the absence of any such information, any notion of the proposal being deferred due to lack of clarity on Chinese holding and a penalty on Paytm is entirely false and misleading," the company said.

India's foreign, home, finance and industries ministries did not reply to emails seeking comment.

There was no indication of how long the decision had been deferred for, nor what may be necessary to secure approval.

Paytm Payment Services' turnover accounted for a quarter of Paytm's consolidated revenue from operations in 2022/23, according to its last annual statement.

While Paytm was already offering online payment services, the need for the payment aggregator licence arose after the regulator asked for the business to be transferred to an independent legal entity - Paytm Payments Services.

If approval of the investment is withheld, Paytm would have to withdraw the funds from Paytm Payment Services, another of the sources said.

Reuters could not ascertain whether the deferral of the investment approval would mean Paytm Payment Services would need to stop offering online payment services.