Paytm close to winning approval for investment in payments gateway arm

Paytm is close to winning the approval to invest in its key payments gateway arm, a decision that has been pending for two years and which would give the troubled fintech company some respite.

The government grew more supportive of the investment after Paytm’s Chinese shareholder Ant Group Co. lowered its stake in the Indian firm, people familiar with the matter said, with one of the people saying the approval could come within days. A federal approval is needed because Ant’s stake in Paytm makes its outlay in the Paytm Payments Services Ltd. arm a direct foreign investment.

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The investment allows Paytm to beef up its arm which processes online transactions. While the investment is less than $12 million, an approval would signal Paytm is still in the government’s good books even as the country’s banking regulator has tightened its grip on the company.

The Reserve Bank of India in 2022 held back Paytm Payments Services’ application to become a so-called payments aggregator — an entity which makes it easier for online retailers and merchants to accept customers’ digital payments.

The banking regulator also asked the unit to seek permission from the federal government for a past investment from Paytm, whose official name is One97 Communications Ltd. At the time, Ant owned a nearly 25% stake in One97, and New Delhi had stepped up scrutiny of investments from China.

Paytm’s billionaire founder Vijay Shekhar Sharma acquired 10.3% stake from Ant last year in a cashless deal that made him the biggest shareholder in One97 with just over 24% equity.

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The deal likely boosted the government’s confidence toward giving Paytm Payments Services security clearance for foreign direct investment, the people said, declining to be named as the matter is private. The proposal will now go to an inter-ministerial committee for a final decision, one of the people said.Paytm’s application to qualify as a payments aggregator is still pending before the RBI, which in 2022 also barred the company from onboarding new online merchants. The RBI approves such applications if they fulfill regulatory requirements and match compliance norms it has set.

The home ministry, the RBI and Paytm didn’t respond to requests for comment.

Paytm is under intense regulatory and investor scrutiny after India’s banking regulator last week ordered Paytm Payments Bank Ltd. — another unit of Sharma’s fintech empire — to stop accepting deposits in its accounts or popular digital wallet after February 29, dealing a massive blow to the billionaire’s ambitions. Shares of One97 have tumbled more than 40% since the RBI’s surprise action.