ED Starts Investigating Paytm Bank Over Foreign Exchange Violations

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Updated: 04-04-2024

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Enforcement Directorate on the 14th Feb began preliminary investigation against the Indian fintech, Paytm, owned by One 97 Communications. Earlier on 31st January, RBI had already ordered the Paytm Payments Bank to halt its services by February 29th.

Order by the RBI

Reserve Bank of India, previously directed the Paytm Payments Bank to cease all deposits and credit transactions after the date 29th Feb, after which the customers of Paytm Payments Bank would face restrictions on several key transactions.

The bank, which hold a 49% stake in Paytm Payments Bank, is found to be non-compliant with the regulatory standards and thus, poses material supervisory concerns.

Why did the ED begin an investigation against Paytm Payments Bank?

Paytm's came under the scanner of agencies on the suspicion of violating the foreign exchange rules. ED started investigating the One 97 Communications, aka Paytm, suspecting the firm to be violating the foreign exchange rules, however, Paytm denied any allegations of forex violations.
Prior to this, the ED collected more details from Reserve Bank of India, which had already order the Paytm Payments Bank to halt much of its business by February 29 in a previous order.

Statement by the Paytm-

Answering to the FEMA violations allegations as well as the reports of ED investigations, Paytm spokesperson described the allegations as "unfounded and factually incorrect".
Paytm spokesperson also explained that any kind of overseas remittances could not be performed from the Paytm Payments Bank.
It was also informed that conducting any operation related to outward remittance is not possible due to the licence for payments banks as such transactions are permitted for large commercial banks in India only.

RBI’s stance-

The RBI Governor Shaktikanta Das last week clarified that not review would be held against the Bank’s decision of directing PPBL to stop accepting deposits or top-ups.
As has already been mentioned above, on the date January 31st, RBI released an order according to which the PPBL was directed to stop accepting deposits or top-ups in their customer accounts, wallets, FASTTags and other instruments from February 29th, due to the allegations of non-compliance with regulations and supervisory concerns.

How the Customers would be affected-

From the specified date, the customers of the Paytm Payments Bank would face restrictions on various key transactions. There shall be no further deposits, credit transactions, or top-ups allowed in the customer accounts, wallets, FASTags, prepaid instruments, or National Common Mobility Cards.
Some services such as the fund transfers and UPI facilities would no longer be available, however the customers could still be allowed to withdraw funds from their accounts.
Users could, thus, without any restriction continue to use PayTM app and the UPI channel. It must be noted that the PayTM app is owned by the parent company and has no direct association with the PayTM Payments Bank.

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