MUMBAI: Three days after its managing director and chief executive Rishi Gupta was arrested for alleged GST evasion, Fino Payment Bank Monday said the arrest of its leader has nothing to do with tax evasion and that the arrest was linked to investigation into some programme managers associated with multiple banks and that the bank is fully GST-complaint.
The development led a sharp plunge in the bank shares which tanked as much 14% in morning trade and has recovered most of the losses in afternoon trade but was still down 2% at Rs 188.50.
In an exchange filing Monday, the bank said the investigation was related to programme managers associated with multiple banks and that the bank was fully compliant with GST payments.
The arrest by the Directorate General of GST Intelligence (DGGI) comes a month after the Reserve Bank approved Gupta's reappointment as CEO. The GST department is alleging that the bank owes over Rs 3,000 crore GST.
The bank also chief financial officer Ketan Merchant will oversee operations in Gupta's absence, and that "the bank and Gupta have nothing to do with the actions of the programme managers."
In December Fino received RBI approval to convert into a small finance bank, a move that would allow it to accept larger deposits, offer loans and credit facilities, and broaden its currently restricted payments bank remit.
The statement further said it has not evaded any GST dues and is compliant with all regulations after the arrest of its MD and CEO.
The DGGI investigation concerns programme managers associated with multiple banks, not Fino’s direct GST compliance alone.
The bank also denied involvement in or promotion of betting activities saying its merchant onboarding process aligns with regulatory requirements.
Industry bodies like PCI and SPF have voiced concerns over the arrest and potential implications for governance continuity in the fintech sector and finance minister Nirmala Sitharaman has assured that the ministry will look into the matter following concerns raised by industry stakeholders.
"Investigation by the DGGI is in relation to the programme managers associated with multiple banks and not on the GST compliance of the bank itself, and the bank and its officials have nothing to do with the business/actions of the program managers in question," Fino said in the filing.
DGGI arrested Gupta on Friday for violation of the law related to the GST under the provisions of Sections 132(1)(a) and 132(1)(i) of the CGST and SGST Act, 2017. The authority is investigating the use of alleged shell companies and payment aggregators to funnel illicit funds generated by online money gaming.
“Onboarding is being done by the business or relevant teams concerned and not the MD & CEO of the bank. Further, as part of the onboarding checks, one of the preconditions is that the merchants referred by the programme managers need to have an existing banking relationship with other bank for facilitating the UPI transactions," it said.
The bank has not issued any alleged fake invoice, it said, adding all invoices issued are based on the services utilised by the program managers or merchants. The bank has a robust risk management framework around the transaction monitoring of the merchants for usage of the virtual payments address provided by the lender, it said.
The arrest surprised the industry and market players. Industry bodies like the Payments Council of India and Startup Policy Forum came out in support of Rishi Gupta. PCI, which represents payment companies, wrote to the finance minister on the matter. The PCI sought urgent intervention and called for greater proportionality in enforcement action.