The arrest of Fino Payments Bank MD & CEO Rishi Gupta in a GST investigation linked to alleged online gaming transactions has rattled the fintech sector. We take a look at the allegations, why intermediaries are central to the probe, and what the controversy means for banks and regulators
l What has happened at Fino Payments Bank?
THE CONTROVERSY ERUPTED after Rishi Gupta, managing director and CEO of Fino Payments Bank, was arrested by the Directorate General of GST Intelligence (DGGI) under provisions of the Goods and Services Tax (GST) law. The arrest followed a probe into suspected irregularities linked to financial flows associated with online gaming platforms.
According to officials, investigators were examining whether certain entities connected to the bank had facilitated transactions linked to gaming and betting operations that may have evaded GST obligations. Authorities also alleged that key documents and information sought during the probe were not provided promptly, which formed part of the grounds for the arrest.
The bank, in filings to stock exchanges, said the investigation relates primarily to certain programme managers or partners working with the bank, rather than to the bank’s own GST compliance.
The development rattled investors and triggered a sharp fall in the bank’s share price after the news of the arrest became public.
l What exactly are the allegations being investigated?
AT THE CENTRE of the probe are allegations of GST evasion and suspicious financial flows linked to online gaming platforms. Enforcement authorities believe that a network of intermediaries and shell entities may have been used to route funds connected to gaming or betting operations while avoiding tax liabilities.
Investigators are examining whether programme managers or merchant onboarding partners associated with the bank facilitated the processing of payments for these entities. Authorities suspect that some of the firms involved may have been dummy entities created to move funds while disguising the real nature of the transactions. The alleged failure by the bank to provide certain documents promptly to the enforcement authorities is one of the factors cited in justifying the arrest.
l Role of payment intermediaries & programme managers is key
A KEY ELEMENT here is the role played by programme managers and payment intermediaries in the digital payments ecosystem. Banks work with such partners to expand their merchant network and process large volumes of transact-ions. Programme managers handle merchant onboarding, technology integration and operational support; banks provide the regulated financial infrastructure. This layered structure can at times create compliance blind spots.
If a partner onboards merchants without adequate due diligence, questionable transactions can enter the system. The probe is examining whether proper checks were conducted and whether suspicious transactions should have triggered compliance alerts. The episode has drawn attention to the regulatory risks in complex fintech partnerships, where responsibility for oversight is shared across multiple entities.
l Bank’s response to the arrest
FINO PAYMENTS BANK has moved quickly to reassure customers, regulators and investors that its core operations remain unaffected. In regulatory filings, the bank stated that the probe relates to certain external programme managers or partners, not to the bank’s own GST liabilities. It emphasised that the bank has fully discharged all tax obligations related to its revenues. Following the CEO’s arrest, the bank said Chief Financial Officer Ketan Merchant would oversee day-to-day operations, while a committee of senior executives and directors has been formed to ensure continuity in management.
It said customer deposits, transaction services and distribution operations continue to function normally. The management has indicated that preparations for its planned transition into a small finance bank — a move that would allow it to expand into lending —remain on track. Despite the assurances, the episode has raised questions among investors and regulators about governance and oversight.
l Arrest sparks debate in banking sector
THE ARREST OF a serving bank CEO under provisions of the GST law is highly unusual and has sparked debate across India’s banking and fintech sectors. Some industry participants argue that the case highlights the increasing regulatory scrutiny of digital payments ecosystems, especially where financial institutions work with multiple third-party partners and intermediaries. As digital transactions expand rapidly, ensuring compliance across such networks has become more complex.
Others have raised concerns about the use of arrest powers in tax probes, particularly when the alleged violations involve indirect connections through partners. Finance Minister Nirmala Sitharaman has said the government will examine the circumstances surrounding the arrest. More broadly, the controversy underscores a key challenge facing India’s fast-growing digital finance sector: balancing rapid innovation and financial inclusion with strong oversight and regulatory accountability.