Enforcement Directorate Said to Have Not Yet Found Forex Breaches at Paytm Payments Bank

The investigation has found some lapses related so-called know-your-customer rules that verify the profiles of users, said the source.

By Reuters | Updated: 19 February 2024 18:37 IST

Enforcement Directorate Said to Have Not Yet Found Forex Breaches at Paytm Payments Bank

Photo Credit: Reuters

ED announced the investigation into overseas transactions by Paytm Payments Bank last week

Highlights

Paytm shares have plunged more than 50 percent
The rout has eroded around $3.1 billion in shareholders' wealth
Paytm Payments Bank secured a 15-day extension from RBI for its wind-down

An investigation into possible foreign exchange violations at Paytm Payments bank by India's financial crime fighting agency has not yet found any breaches, a government source directly aware of the matter said on Monday.

Last week, India's Enforcement Directorate announced the investigation into overseas transactions by Paytm Payments Bank, a unit of One 97 Communications, popularly known as Paytm.

Paytm shares have plunged more than 50 percent since the Reserve Bank of India announced on January 31 that Paytm Payments Bank could no longer accept new funds into its accounts or wallet. The rout has eroded around $3.1 billion (roughly Rs. 25,736 crore) in shareholders' wealth.

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The investigation has found some lapses related so-called know-your-customer rules that verify the profiles of users, said the source.

But, the "Enforcement Directorate has not yet detected any foreign exchange management act violations by Paytm Payments Bank," the source said.

There were also some issues with a suspicious transaction report not being generated by the bank, the source said, adding that the Enforcement Directorate is still ascertaining whether to bring charges for any potential violations.

Paytm CEO Said to Be in Talks With RBI Over Regulatory Concerns

The Enforcement Directorate did not immediately respond to a request for comment.

Paytm, on Monday, replied with an earlier statement from last week saying it was providing information to the Enforcement Directorate and other authorities.

One 97 Communication shares rose by the exchange-allowed maximum of 5 percent for a second session on Monday, taking total gains to a little over 10 percent in two days.

Paytm Payments Bank secured a 15-day extension for its wind-down to March 15 from the Reserve Bank of India on Friday.

Also on Friday, Paytm said it signed on a new banking partner, Axis Bank, to try to keep some of its popular products running and survive its current crisis.

Analysts at Bernstein said the deadline extension would help smoothly transfer Paytm Payments Bank accounts and said Paytm's merchants being able to use the company's QR codes, soundbox and card machines is a "major positive".

Citi analysts expects more banking partnerships, like the one with Axis, calling them "significant positives for ongoing business".

However, Citi kept its "sell" rating on the stock, while Bernstein maintained "outperform."

Jefferies, however, said it would stop coverage of Paytm until news on regulatory actions "settles". Two brokerages have dropped coverage in the past month, according to LSEG data.

Now 13 analysts cover Paytm, with five of them recommending selling the stock, compared with none for the past year. The overall average rating, however, is the equivalent of "hold", per LSEG data.

The median price target on the stock has dropped 31 percent in the past month to Rs. 625. The stock is currently at Rs. 358.35.

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