(Reuters) -Shares of Indian fintech firm Paytm jumped nearly 6% on Wednesday after the country's payments regulator allowed the company to sign new users for digital payments via UPI, which analysts said removed a key regulatory overhang.

Paytm shares rose over 8% after the NPCI approved the company to onboard new UPI users, providing a significant relief following RBI's restrictions earlier. The NPCI's approval allows Paytm to operate as a Third-Party Application Provider through four banks,

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.

The shares of One 97 Communication, which is the holding company of digital payment service provider Paytm, shoot up more than 11 per cent on the BSE (Bombay Stock Exchange). The shares surged after the company disclosed that the NPCI has allowed to onboard new UPI users.

The country's financial regulator wound down Paytm's banking unit in January due to persistent compliance issues, which pulled down its monthly transacting users (MTU) to 70 million in the September-quarter from 100 million in the quarter before the clampdown.

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.