Law Agency Will Probe Paytm If Needed, But No Such Action Afoot Now: Revenue Secretary

Revenue secretary Sanjay Malhotra has said that law enforcement agencies will probe Paytm if needed but at the moment there is no such action afoot.

“If there is any action to be taken, law enforcement agencies will take it. Right now there is nothing,” Malhotra told Moneycontrol, as reports have emerged of a possible enforcement directorate (ED) probe.

Meanwhile, Paytm has denied reports of any investigation by the ED against the company, its associates or founder and chief executive for money laundering.

The company “categorically denies any investigation by the enforcement directorate on OCL (One97 Communications Ltd), our associates and/or its founder and CEO for anti-money laundering activities”, Paytm said in its exchange filing.

“Neither the company nor its founder and CEO are being investigated by the enforcement directorate regarding inter alia money laundering. In the past, certain merchants/users on our platforms have been subject to enquiries and on those occasions, we have always cooperated with the authorities,” the filing added.

The fintech major further said in its regulatory filing that the company would like to set the record straight and deny any involvement in anti-money laundering activities.

“We have and continue to abide by Indian laws and take regulatory orders with utmost seriousness,” it said.

Last week, the Reserve Bank of India (RBI) barred Paytm Payments Bank from any deposits or credit transactions, or top-ups in any of its customer accounts.

Set up in 2017, Paytm Payments Bank is among the top payments banks in the country, providing a mobile banking platform and e-wallet services. Paytm’s parent firm, One97 Communications, holds a 49% stake in Payment Payments Bank.

The central bank in a statement said, “No further deposits or credit transactions or top ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards (National Common Mobility Cards), etc. after February 29, 2024, other than any interest, cashbacks, or refunds which may be credited anytime.”

Under Section 35A of the Banking Regulation Act, 1949, the RBI said that the Nodal Accounts of One97 Communications Ltd and Paytm Payments Services Ltd. are to be terminated at the earliest, in any case by February 29, 2024.

The regulator has taken the step after Paytm Payments Bank’s “persistent non-compliance and continued material supervisory concerns”.

However, Paytm founder and chief executive officer (CEO) Vijay Shekhar Sharma said that the fintech giant will continue to work beyond February 29 after the RBI has tightened the reins on the fintech giant’s banking operations.

Taking to social media platform X, Sharma said, “…I, with every Paytm team member, salute you for your relentless support. For every challenge, there is a solution and we are sincerely committed to serve our nation in full compliance. India will keep winning global accolades in payment innovation and inclusion in financial services – with PaytmKaro as the biggest champion of it.”

Meanwhile, India’s prime stock exchanges – the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) – have halved the daily trading limit of shares for Paytm. 

Effective Monday (February 5), the new cap is set at 10%, down from the prior 20%. This decision trails a staggering $2 Bn plunge in Paytm’s valuation, triggered by intensified regulatory scrutiny over Paytm Payments Bank, Reuters reported.

Paytm’s market worth nosedived to a mere $3.7 Bn post the tumultuous week at the Mumbai bourses, marking a substantial $2 Bn decline. The shares plummeted, hitting the 20% daily limit on consecutive days, Thursday and Friday.

On Monday, Paytm stock fell another 10%, again hitting the lower circuit, extending its fall to over 42% in the last three sessions.

The RBI is also reportedly mulling the cancellation of the operating licence of Paytm Payments Bank next month. 

Paytm Payment Bank’s Frequent Run-Ins With The RBI

This is not the first time Paytm Payments Bank has come into the RBI’s crosshairs. 

In October last year, the central bank slapped the listed fintech giant’s subsidiary with an INR 5.39 Cr penalty for non-compliance with know-your-customer norms. 

At the time, the RBI also flagged six major issues with the payments bank, including failure to identify beneficial owners in respect of onboarded entities for providing payout services, the failure to monitor payout transactions and carry out risk profiling of entities availing payout services, and failure to report cybersecurity incidents without delay.

In March 2022, the RBI directed Paytm Payments Bank to stop onboarding new customers, a restriction which is still ongoing. While the payments bank expressed hope in September 2023 that the restrictions might be lifted in March 2024, the latest RBI action might have thrown a spanner in the works on that front.