Paytm crisis: ED hasn't found any FEMA violation in Paytm Payments Bank case, says report

Paytm crisis: The Enforcement Directorate (ED) hasn't found any violation under the Foreign Exchange Management Act (FEMA) during its recent inquiry into Paytm Payments Bank Limited (PPBL) transactions. But the Reserve Bank of India (RBI) can take action against certain other instances of alleged non-compliance, a report in The Hindu said. The ED initiated a preliminary inquiry against Paytm Payments Bank earlier this week. The action comes days after the Reserve Bank of India (RBI) barred the Paytm subsidiary from accepting new deposits from February 29.

On January 31, the RBI issued a circular prohibiting Paytm subsidiary PPBL from accepting additional deposits, top-ups, or conducting credit transactions in its customer accounts, wallets, FASTags, and National Common Mobility Cards (NCMC) beyond February 29. The deadline was pushed to March 15  on Friday (February 16).

The RBI had said that action was taken against PPBL on the basis of the Comprehensive System Audit report and a subsequent compliance validation report of the external auditors’ reports disclosing “persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action”.

The ED was tasked with examining the financial transactions under scrutiny. ED probes alleged violations or crimes under the FEMA and the Prevention of Money Laundering Act (PMLA).

Earlier, the ED had questioned senior Paytm officials and had got documents from them following the Reserve Bank of India (RBI) action against Paytm Payments Bank.  The Paytm executives had submitted some documents, after which they were asked certain questions. 

The sources quoted in the report said that there are no PMLA scheduled offences involved in the case of PPBL, therefore, money laundering investigation cannot be done. “If no crime is made out, there is also no generation of ‘proceeds of crime’ and so, PMLA does not apply,” a government official said. Therefore, the ED looked into the transactions to determine if there was any violation under the FEMA provisions.

Paytm nodal company One 97 Communications Limited had previously said that its subsidiaries and its associate, Paytm Payments Bank Limited, do not undertake Outward Foreign Remittance. In a regulatory filing, Paytm said: "We would also like to clarify that our associate Paytm Payments Bank Limited does not undertake Outward Foreign Remittance." 
It added: "One 97 Communications Limited (OCL), its subsidiaries and its associate, Paytm Payments Bank Limited, have over time been receiving notices and requisition for information, documents and explanations from the authorities, including Enforcement Directorate (ED), with respect to the customers that may have done business with the respective entities, and provided the required information, documents and explanations to the authorities."

Giving some breather to customers, the RBI on Friday extended the deadline for customers of Paytm Payment Bank to make deposits and credit transactions till March 15, an official document read.

"No further deposits or credit transactions or top ups shall be allowed in any customer accounts, prepaid instruments, wallets, FASTags, National Common Mobility Cards, etc. after March 15, 2024 (extended from the earlier stipulated timeline of February 29, 2024), other than any interest, cashbacks, sweep in from partner banks or refunds which may be credited anytime," RBI said.

One97 Communications, the parent company of Paytm, announced on Friday that it has transitioned its nodal account from Paytm Payments Bank to Axis Bank. Disclosed in a recent regulatory filing, this strategic shift aims to ensure seamless operation of critical services - including the Paytm QR functionality, Soundbox, and card machine infrastructure - post-March 15th deadline set by the Reserve Bank of India (RBI).

Also read: Paytm crisis: One97 Communications shifts nodal account to Axis Bank for seamless transactions

Also read: RBI extends deadline for services of Paytm Payments Bank to March 15 for customers