ED Gathering Information on FDI Use in Paytm: Report

The exercise is to ascertain if the foreign funds were used for investments other than those stated to the Reserve Bank of India, the 'Financial Express' reported.

New Delhi: 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 the Financial Express.

The exercise is to ascertain if the foreign funds were used for investments other than those stated to the Reserve Bank of India (RBI), said the report.

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), FE noted.

Sources told the newspaper 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.

A spokesperson for Paytm told news agencies that allegations regarding FEMA violations were “unfounded and factually incorrect”.

Meanwhile, according to Reuters, CEO Vijay Shekhar Sharma and other Paytm officials met with senior RBI executives on February 6 (Tuesday) to deliberate on “a road map to address regulatory concerns.”

Subsequently, Sharma also met finance minister Nirmala Sitharaman at the Parliament building. Sources told the business daily that the government clarified it has no role in the matter, saying that it falls within the RBI’s jurisdiction.

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, the newspaper explained.

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, it added.

FDI in fintechs are governed by separate guidelines issued by the RBI, governing electronic payments, know-your-customer requirements and data localisation.

Sources told FE that the ED is investigating another aspect, which pertains to whether Paytm Payments Bank has facilitated any transactions that contributed to 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, asking not to be identified, told FE.

“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.

RBI has directed Paytm Payments Bank to stop allowing deposits into customers’ accounts after February 29, citing “persistent non-compliances”. The services barred include using the United Payments Interface (UPI), IMPS, Aadhaar-enabled payments and bill payment transactions.