PayPal’s troubles in India show no signs of going away. The company will started enforcing daily auto-withdrawal of funds for Indian users from September 26, 2011 in order to comply with regulations of the Reserve Bank of India (RBI), reports Trak.in.

The Indian government has been at odds with PayPal for a while now and the latter has had to steadily remove features and impose restrictions on Indian users, thus severely handicapping their ability to send and receive money using the service. In May this year, the company started requiring Indian users to add their PAN card, purpose code and bank account to PayPal in order to continue using it.

On Friday, Trak.in writer Arun Prabhudesai received an email from PayPal informing him that his account balance had automatically been withdrawn to his bank account. Having never received such a notice before, Prabhudesai logged in to his PayPal account to find that that the “auto withdrawal to bank account” option had been enabled in it.

When he tried to disable it, the service disallowed him from doing so, stating that “this is an Indian regulatory requirement and applies to all PayPal users in India”. About an hour later, the company sent out the following email to its Indian users:

As communicated earlier this year, we are working to implement RBI’s Guidelines regarding the processing of export-related payments. As a result the following changes will be made to your PayPal account:
  • Effective 26th September 2011, you will not be able to receive overseas payments exceeding US$ 500 per transaction into your PayPal account.
  • Any balance will be auto withdrawn out of your PayPal account daily.
We understand the impact this may cause to your business and seek your support and understanding as we continue to work together with the RBI. We will keep you updated as our conversations progress.

Understandably, Indian users of PayPal have been directing a lot of ire towards the company for rendering the service only barely useable in India. It seems to us, however, that there isn’t much the company can do in the face of the government’s borderline hostile opposition to it.

Whether PayPal will ever be able to restore full functionality to its Indian users continues to be doubtful, but we’ll keep you updated as we learn more.