The Enforcement Directorate (ED) is gathering information about the “end uses” of foreign direct investment (FDI) in One97 Communications, which owns Paytm Payments Bank (PPB), a source privy to the matter told FE. The exercise is to ascertain if the foreign funds were used for investments other than those stated to the Reserve Bank of India (RBI).
Currently, FDI is not subject to rigourous end-use norms, but foreign capital raised by Indian companies through the ADR-GDR route aren’t allowed to be invested in real estate or stock markets. The regulations are principally governed by the Foreign Exchange Management Act (FEMA).
A spokesperson for Paytm told news agencies that allegations regarding FEMA violations were “unfounded and factually incorrect”.
The RBI had ordered PPB to wind down most of its business, including deposits, credit products and digital wallets, by February 29.
The sources, however, clarified that the ED is “only enquiring into the process” (of end-uses of FDI) received by One97, while it hasn’t yet ventured into an “investigation” into the matter so far.
Meanwhile, Reuters reported that chief executive officer Vijay Shekhar Sharma and other Paytm officials met senior RBI executives on Tuesday to discuss “a road map to address regulatory concerns”. Later in the day, Sharma also met finance minister Nirmala Sitharaman at Parliament building, and according to sources, he was told the government has no role in the issue that lies in the RBI’s domain.
Currently, 34 foreign (FDI) investors hold a little over 45% in One97 Communications, and over 450 FPIs together have a 18.64% stake in the firm. The rest of the shares are with Sharma (9.1%), retail investors (12.85%), mutual funds (4.99%), body corporates (6.33%) and others.
As per the FDI rules, 49% FDI under the automatic route is allowed in the private banking sector, extendable up to 74% with the approval of the government.
Additionally, FDI in fintechs are governed by separate guidelines issued by the RBI, governing electronic payments, know-your-customer requirements and data localisation.
According to the sources, the other aspect which the ED is looking into is whether PPB has been facilitator of any transactions that aided money laundering. “The RBI has clearly prohibited PPB from offshore transactions, but if the platform was used for the purpose, then it has to be seen whether money laundering was the reason,” the source said, asking not to be identified.
In case the inquiry leads to any PMLA investigation, the agency would have to quantify the proceeds of crime in the hands of PPB, as commission from the users. “There is no pre-registered scheduled offence under PMLA as on date, but this is not an impediment for the agency to begin a probe under PMLA,” the source said.