The Chinese investments in One97 Communications, the parent company of Paytm are under scrutiny. The government is investigating the funding originating from China in Paytm Payments Services Ltd (PPSL), as per the reports. 

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 in November 2020. However, the central bank rejected its application after two years of scrutiny in 2022 and asked the fintech to resubmit it to comply with Press Note 3 under FDI rules. 

Noida-based fintech has investments from the Chinese firm Ant Group Co. 

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

An inter-ministerial committee is examining investments from China in PPSL and a decision will be taken on the FDI issue after due consideration and comprehensive examination, sources said. 

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

Countries which share land borders with India are China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan. 

When contacted, 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 license has to get FDI approval," the spokesperson said. 

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's founding promoter now holds a 24.3 per cent stake. Therefore, your understanding of FDI from China in PPSL is incorrect and misleading," the spokesperson said. 

The Reserve Bank last month 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 Reserve Bank's action against PPBL follows a comprehensive system audit report and subsequent compliance validation report from external auditors. 

RBI had said that these reports revealed persistent non-compliance and continued material supervisory concerns in PPBL, warranting further supervisory action. 

On March 11, 2022, RBI barred PPBL from onboarding new customers with immediate effect.