Fintech major Paytm gets government approval for investment in Payments arm

Vijay Shekhar Sharma-led fintech major Paytm has received government approval for a significant investment in its key subsidiary, Paytm Payment Services Ltd (PPSL).

The approval was confirmed by a top finance ministry official on Friday, signalling a crucial step for the fintech company to resume normal business operations, Reuters reported. The investment, worth 500 million rupees ($5.97 million), had been delayed for months due to Paytm's links to China.

Importance of Paytm Payment Services

Paytm Payment Services Ltd (PPSL) is a critical part of Paytm's business, accounting for a quarter of the company's consolidated revenue in the financial year ending March 2023.

Notably, the approval from the government removes a major stumbling block, allowing PPSL to proceed with its normal operations.

Earlier, PPSL had applied for a payment aggregator license from the Reserve Bank of India (RBI) in November 2020, but the application was rejected in November 2022 due to non-compliance with FDI guidelines.

Regulatory challenges and compliance

Paytm's investment proposal had been under scrutiny by an inter-ministerial panel due to its association with Chinese investors, specifically the Ant Group Co.

Under the FDI rules, any foreign investment from countries sharing land borders with India requires prior government approval. This measure was introduced to prevent opportunistic takeovers during the COVID-19 pandemic.

Following compliance with these guidelines, Paytm can now approach the RBI to seek the necessary payment aggregator license.

Paytm's financial performance

Paytm witnessed a significant decline in its financial performance in the first quarter of fiscal year 2025 (Q1 FY25). The fintech firm's revenue from operations fell by 36% to Rs 1,502 crore compared to Rs 2,342 crore in the same quarter the previous year.

Additionally, the net loss widened to Rs 839 crore, a substantial increase from Rs 357 crore in Q1 FY24.