Paytm Faces Broadened Probe as India’s Anti-Fraud Agency Investigates Forex Law Violations

India’s investigation into digital payments giant Paytm has expanded, with the country’s federal anti-fraud agency examining potential violations of foreign exchange laws. This development follows the recent directive from the central bank instructing Paytm’s banking unit to cease operations.
Paytm digital payment IndiaPaytm, listed as One 97 Communications on exchanges, witnessed its shares plummeting for the third consecutive day on Monday, resulting in a total loss of $2.5 billion in the company’s market value. News of the anti-fraud agency’s probe emerged after Monday’s market close, adding to the ongoing crisis, Reuters reported.

India’s Enforcement Directorate has sought data from the central bank, with sources indicating that the investigation pertains to unspecified provisions of the Foreign Exchange Management Act, covering both individual and corporate overseas transfers.

In response to these allegations, Paytm denied any breaches of foreign exchange laws, dismissing the claims as “unfounded and factually incorrect.”

Vivek Joshi, the secretary of the department of financial services, commented on the situation, stating, “Top fintech players like Paytm should adhere to rules and regulations set by the regulator.”

Paytm’s troubles escalated following Reserve Bank of India’s (RBI) directive on Wednesday, instructing Paytm Payments Bank to halt the acceptance of fresh deposits in its accounts and popular digital wallets from March.

Vinit Bolinjkar, head of research at Ventura Securities, noted the significant impact on Paytm’s brand, credit operations, and potential earnings stream, emphasizing the need for regulatory compliance to restore the company’s fortunes.

RBI is learnt to have uncovered numerous accounts at Paytm Payments Bank created without proper identification, raising concerns about potential money laundering activities. The central bank shared this information with the Enforcement Directorate, India’s financial crime-fighting agency.

One 97 Communications, also known as Paytm, denied any involvement in money laundering and asserted that the companies have never been under investigation by the Enforcement Directorate.

Paytm’s stock experienced a 10 percent daily limit drop on the Bombay Stock Exchange on Monday, reaching a record low of 438.35 rupees, following a two-day consecutive decline by the 20 percent daily limit. The uncertainty surrounding Paytm’s regulatory standing has prompted discussions of the potential cancellation of its license.

The digital payments app, with 330 million digital wallet accounts, is a key player in India’s digital payment landscape, competing with platforms like Walmart’s PhonePe and Google. Concerns are mounting over the fate of Paytm’s license, with sources suggesting that the popular digital wallets may cease operations after February 29.

In response to the Paytm crisis, the State Bank of India (SBI) has extended services to merchants and retailers through its payments subsidiary, SBI Payments Services. SBI Chairman Dinesh Kumar Khara expressed readiness to support the merchant community, indicating a potential shift in the market.

Reports also suggest that Paytm is in exploratory talks with HDFC Bank and Jio Financial Services to sell its digital wallets business housed under Paytm Payments Bank. However, a Paytm Payments Bank spokesperson refrained from commenting on market speculation, and HDFC Bank and Jio Financial Services have yet to respond to requests for comment. Following the report, Jio Financial’s shares surged by 13.9 percent on Monday.

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