Shares of Paytm rose 5% on Wednesday after India's payments regulator said the fintech company could sign new users for its key digital payments business, removing a key overhang since a central bank-ordered ban on its banking unit.

The NPCI nod is expected to come as a relief to Paytm, which had suffered a blow following the Reserve Bank of India's restrictions earlier this year on associate company Paytm Payments Bank Limited (PPBL) in onboarding new UPI users on the Paytm app.

India's Paytm said late on Tuesday it received approval from the country's payments authority to onboard new unified payment interface (UPI) users, providing some relief for the financial services firm after a central bank-ordered ban on its banking unit.

Paytm received NPCI approval for adding new UPI users which paves the way for re-accelerating its dwindling user base and further signaling an easing of regulatory stance, analysts said.

The National Payments Corporation of India (NPCI) has granted approval to Paytm to onboard new UPI users, subject to the adherence to all procedural guidelines and circulars, according to the company.