The Enforcement Directorate (ED) has initiated an inquiry into the utilisation of foreign direct investment (FDI) in One97 Communications, the parent company of Paytm Payments Bank (PPB). The investigation aims to determine whether the FDI funds were allocated for purposes other than those specified to the Reserve Bank of India (RBI). While current regulations do not impose stringent end-use norms on FDI, Indian companies raising foreign capital through the ADR-GDR route are prohibited from investing in real estate or stock markets, as per the Foreign Exchange Management Act (FEMA).
Responding to allegations of FEMA violations, a spokesperson for Paytm dismissed the claims as “unfounded and factually incorrect.”
In response to regulatory concerns, the RBI has directed PPB to wind down several aspects of its business, including deposits, credit products, and digital wallets, by February 29.
Sources familiar with the matter clarified that the ED is conducting an inquiry into the process of FDI end-use by One97, refraining from launching a formal investigation thus far.
In a separate development, Paytm’s CEO, Vijay Shekhar Sharma, and other company officials held discussions with senior RBI executives to address regulatory apprehensions. Sharma also met with Finance Minister Nirmala Sitharaman, who emphasised the RBI’s jurisdiction over the issue.
Currently, foreign (FDI) investors collectively hold a majority stake of over 45% in One97 Communications, while numerous Foreign Portfolio Investors (FPIs) collectively hold an 18.64% stake. The remaining shares are distributed among various entities, including Sharma, retail investors, mutual funds, and body corporates.
Under FDI regulations, private banking sectors allow up to 49% FDI under the automatic route, extendable to 74% with government approval. Additionally, fintech firms, including PPB, are subject to RBI guidelines governing electronic payments, know-your-customer requirements, and data localization.
The ED is also examining whether PPB facilitated any transactions conducive to money laundering, despite RBI prohibitions on offshore transactions. Should the inquiry uncover potential money laundering activities, the agency would assess the proceeds of crime in PPB’s possession. While there are currently no registered offences under the Prevention of Money Laundering Act (PMLA), the ED retains the authority to initiate investigations under PMLA provisions.