After two years of deliberation, Paytm is almost certain to receive India's clearance to invest in its primary payments gateway unit, which would provide some much-needed relief for the financially challenged fintech startup.
According to people familiar with the situation, the government became more supportive of the investment when Ant Group Co., Paytm's Chinese stakeholder, reduced its shareholding in the Indian company. One of the people claimed the clearance may occur within days. Ant's investment in Paytm renders its outlay in the Paytm Payments Services Ltd. arm a direct foreign investment, necessitating federal clearance.
Through the investment, Paytm is able to strengthen its online transaction processing business. Even though the investment is smaller than Rs 1 billion ($12 million), approval would indicate that the government still views Paytm favorably, despite the nation's banking authority tightening its control over the business.
In 2022, the Reserve Bank of India denied Paytm Payments Services' application to become a "payments aggregator," a company that facilitates online retailers' and merchants' acceptance of digital payments from customers. The federal government was also requested to be consulted over a previous investment made by the unit from Paytm, formally known as One97 Communications Ltd., by the banking regulator. At the time, New Delhi had increased its scrutiny of Chinese investments, and Ant held a nearly 25% interest in One97.
The billionaire creator of Paytm, Vijay Shekhar Sharma, became the largest stakeholder of One97 with slightly over 24% stock last year when he purchased a 10.3% stake from Ant in a cashless transaction. The persons, who asked not to be identified because the topic is confidential, said that the deal probably increased the government's confidence in granting Paytm Payments Services security clearance for foreign direct investment. According to one of the persons, the idea will now be sent to an inter ministerial committee for a final decision.
The RBI is still considering Paytm's application to be approved as a payments aggregator, and in 2022 the RBI prohibited the business from accepting new online merchants. If such applications meet regulatory requirements and the RBI's established compliance guidelines, they are approved.
Requests for response from the RBI, Paytm, and the Home Ministry went unanswered.
The banking regulator in India last week ordered Paytm Payments Bank Ltd., another branch of Sharma's fintech empire, to cease accepting deposits in its accounts or well-known digital wallet after February 29. This decision dealt a severe blow to the billionaire's aspirations and placed Paytm under intense regulatory and investor scrutiny. One97's stock has dropped by almost 40% following the RBI's unexpected move.
