India financial crimes agency has not yet found forex breaches at Paytm unit, source says

By Nikunj Ohri and Nandan Mandayam

NEW DELHI/BENGALURU (Reuters) -An investigation into possible foreign exchange violations at Patym 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% since the Reserve Bank of India announced on Jan. 31 that Paytm Payments Bank could no longer accept new funds into its accounts or wallet. The rout has eroded around $3.1 billion in shareholders' wealth.

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.

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% for a second session on Monday, taking total gains to a little over 10% 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% in the past month to 625 rupees. The stock is currently at 358.35 rupees.

(Writing by Swati Bhat; Editing by Sonia Cheema, Rashmi Aich and Christian Schmollinger)