New Delhi, March 2 Fino Payments Bank, whose Managing Director and CEO Rishi Gupta was arrested by the Directorate General of GST Intelligence (DGGI) on Monday, said the bank had not evaded any GST dues and was compliant with all regulations.
"The DGGI's investigation was related to the program managers associated with multiple banks, and not on the GST compliance of the bank itself. The bank and its officials have nothing to do with the business/actions of the program managers in question," Fino Payments Bank said in a regulatory filing.
The DGGI arrested Gupta on Friday for violation of the Goods and Services Tax law. He was "arrested 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.
Meanwhile, the bank said that it does not directly or indirectly engage or promote any kind of betting activity through any forum, website, platform, or in any form.
The bank's program manager or merchant onboarding process is in line with regulatory requirements, and the due process has been followed, it said.
"Onboarding is being done by the concerned business or relevant teams, and not the Managing Director & CEO of the bank. Furthermore, as part of the onboarding checks, one of the preconditions is that the merchants referred by the program managers need to have an existing banking relationship with another bank to facilitate UPI transactions," it said.
The bank has not issued any alleged fake invoices, it said, adding that all invoices issued are based on the services utilized by the program managers or merchants.
The bank has a robust risk management framework around the transaction monitoring of merchants for the use of the Virtual Payments Address (VPA) provided by the lender, it said.
It is to be noted that the RBI has given a timeline of 18 months to complete the conversion of the bank into a Small Finance Bank, and the management expects to complete the process before the stipulated timeline.
The arrest of the Managing Director and CEO of the payments bank surprised the industry and market players. Industry bodies like the Payments Council of India (PCI) and Startup Policy Forum (SPF) came out in support of Rishi Gupta.
Meanwhile, Finance Minister Nirmala Sitharaman, in a response to social media posts, has assured that the ministry would look into the matter.
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.
PCI noted in its letter that regulated financial institutions operate across complex networks of merchants, technology partners, and business correspondents.
Attributing personal liability to senior leadership in matters linked to alleged third-party non-compliance carries significant implications for governance continuity, it said.
"We believe it is important for the industry to articulate concerns around proportionality and governance continuity when supervised institutions and their leadership are involved. We have placed these considerations before the Finance Minister in a spirit of constructive engagement," PCI chairman Vishwas Patel said.
Another industry association, Startup Policy Forum, which represents startups in India, said in a statement that it has been closely monitoring the developments, and while Fino Payments Bank is not a member of SPF, the forum respects that law enforcement authorities act on their assessed reasons and does not seek to interfere in the matter.
"However, several SPF members have raised concerns that such coercive actions against fintech founders, possibly at times stemming from business partners' alleged violations, could set a problematic precedent for the sector," the statement read.