PayPal has stopped electronic bank withdrawals to customers in India and seems part of the continuing problems with Reserve Bank of India and international money transfer guidelines across India.
PayPal has announced that
In accordance with regulatory instructions, there will be a change in our withdrawal functionality in India starting on August 1, 2010. At present, you can request for either an electronic or cheque withdrawal of funds from your PayPal account. From July 29, 2010 onwards, you will only be able to request for a cheque withdrawal of funds from your PayPal account.
Paypal had earlier blocked personal payments to India as per RBI orders, then later restored payments but only for settlements for exports of goods and services, and that too with requirement of an purpose code.
While Paypal is working on restoring fund transfers to India, the cheque withdrawal is the only option available for the thousands of freelancers using the Paypal as a convenient payment option. Paypal has setup a page for Paypal India users on how they can request a cheque to cash out their funds.
To pacify the users, Paypal has also decided to refund the US$5 cheque withdrawal fee for cheque withdrawals made on July 29, 2010 onwards. I am sure lot of PayPal users will be disappointed as cheque withdrawal and bank deposit takes a long time for money transfer…
UPDATE (30/7): Paypal has restarted electronic withdrawals to India banks. To thank you for your loyalty, they will still provide the US$5 processing fee refund for any cheque withdrawals made from July 29 until further notice.