Paytm Subsidiaries Catch Attention of Indian Financial Crime Watchdog

Paytm has received a show-cause notice from India’s financial crime-fighting agency.

The notice pertains to an alleged violation of India’s Foreign Exchange Management Act, the FinTech said in a statement Saturday (March 1).

The alleged violations have to do with Paytm’s acquisition of two subsidiaries — Little Internet Private Limited and Nearbuy India Private Limited — for the years 2015 to 2019, a period that predates Paytm’s ownership.

“Paytm upholds principles of transparency, governance and compliance in all its business practices,” the company said.

“This matter is being addressed with a focus on resolving it in accordance with applicable laws. There is no impact of this matter on Paytm’s services to its consumers and merchants, and all services are fully operational and secure, as always.”

The news comes as Paytm continues to deal with the fallout of regulatory action from last year. In January, the company’s third-quarter earnings showed revenues declining by 36% to 18.3 billion rupees (about $212 million), lower than the 19 billion rupees analysts had forecast. Paytm also reported a net loss of 2.08 billion rupees, compared to 3.32 billion rupees in losses analysts had projected.

In early 2024, India’s banking regulator essentially shuttered Paytm Payments Bank — the company’s banking arm — in the wake of a string of warnings about unregulated data flows between that business and its parent.

With its banking business closed down, the company was forced to seek out new partnerships with other Indian lenders. It also sold off its movie and events ticketing business to Zomato to help lower expenses and is waiting for the blessing of India’s central bank to become a payments aggregator.

Paytm essentially had the payments market in India to itself when it first launched, but now competes with heavyweights like Google and the Walmart-backed PhonePe. The company lost ground to those firms last year when the bank was shut down.

Speaking to Bloomberg News in January, Paytm founder and CEO Vijay Shekhar Sharma said he hopes the situation is a temporary one.

“As far as the bank is concerned, which is a separate entity, now we are pretty much at an arm’s length so it should get sorted out soon,” Sharma said. “We’ve learnt our lessons and we’ve dramatically changed our approach towards the business.”