(Reuters) - 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.

(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 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.

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.

Paytm's parent company, One97 Communications Ltd, has received approval from the National Payments Corporation of India (NPCI) to onboard new UPI users, following compliance with regulatory standards.

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.