Trouble brews for Indian fintech giant Paytm as the Enforcement Directorate (ED) initiates a preliminary inquiry into Paytm Payments Bank, as per Reuters' sources.

Owned by One 97 Communications, Paytm Payments Bank faced severe repercussions from the Reserve Bank of India (RBI), following an order mandating the halt of its services by February 29.

What prompted the ED to investigate Paytm Payments Bank?

The financial crime-fighting agency has turned its attention towards Paytm's subsidiary over suspicions of breaching foreign exchange regulations. A Reuters report earlier this month revealed the initiation of a probe into One 97 Communications, commonly known as Paytm, over alleged violations of foreign exchange regulations. However, the company has vehemently denied these accusations.

Previously, the investigative agency had gathered additional information from the Reserve Bank of India, which had instructed Paytm Payments Bank to significantly scale down its operations by the end of February.

The exact reasons and specific provisions of the Foreign Exchange Management Act (FEMA), governing both individual and corporate overseas transfers, were not disclosed in Reuters' report, which relied on unnamed sources.

Paytm Responds to Allegations of FEMA Violations

In response to reports of alleged FEMA violations and the ED's investigation, a spokesperson for Paytm dismissed the allegations as "unfounded and factually incorrect."

The spokesperson clarified that Paytm Payments Bank does not facilitate any form of overseas remittances from its bank accounts or wallet accounts. They further emphasized that payments banks are prohibited from engaging in operations related to outward remittances, which are exclusively reserved for larger commercial banks in India.

The investigation into Paytm Payments Bank by the Enforcement Directorate adds to the mounting challenges faced by the fintech giant, raising concerns about potential regulatory breaches in one of India's leading digital payment platforms.

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