Background
India’s federal anti-fraud agency is investigating digital payments firm Paytm for potential violations of foreign exchange laws. This follows the Reserve Bank of India (RBI) directing Paytm’s banking unit to stop operations.
Impact on Paytm
Paytm, listed as One 97 Communications, saw a significant drop in its shares, hitting the daily lower limit for three consecutive days.
The company’s market value suffered a loss of $2.5 billion during this period.
Enforcement Directorate’s Involvement
India’s Enforcement Directorate is broadening the investigation and has sought data from the central bank regarding the matter.
Specific provisions of the Foreign Exchange Management Act are under scrutiny, but the details have not been disclosed.
Paytm’s Response
A spokesperson for Paytm denies the allegations of foreign exchange law violations, calling them “unfounded and factually incorrect.”
RBI’s Instructions to Paytm Payments Bank
RBI instructed Paytm Payments Bank to stop accepting fresh deposits in its accounts and digital wallets starting March.
The central bank discovered numerous accounts created without proper identification, raising concerns about potential money laundering.
Stock Market Impact
Paytm’s stock faced a 10% daily limit drop on the Bombay Stock Exchange, reaching a record low.
Regulatory Measures and Uncertainty
Regulatory crackdown and ongoing investigations have created uncertainty, affecting Paytm’s brand, credit operations, and earnings potential.
Speculation arises that RBI’s measures could lead to the cancellation of Paytm’s license.
Business Response
In response to the crisis, Paytm is reportedly in talks with HDFC Bank and Jio Financial Services to sell its digital wallets business housed under Paytm Payments Bank.
The outcome of these talks is uncertain.
Alternative Services:
Amid the uncertainty surrounding Paytm, State Bank of India (SBI) has extended services to merchants and retailers through its payments subsidiary, SBI Payments Services.
Market Reaction
Following reports of Paytm’s discussions with HDFC Bank and Jio Financial Services, shares of Jio Financial rose by 13.9%.