Few months ago PayPal started having issues with Indian regulations and blocked withdrawls for Indian users but the matter was resolved soon, it seems their are still some regulatory hurdles left as PayPal has now stopped electronic withdrawals to Indian banks for the time-being. The bank emailed all users informing about the decision stating that until the matter is taken care of users can withdraw money via Cheques and they will refund the $5 USD cheque withdrawal fee for any cheque withdrawals made on July 29, 2010 onwards.

Paypal Email :

In accordance with regulatory instructions, we would like to notify you about 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 if you are an India user.

From July 29, 2010 onwards, you will only be able to request for a cheque withdrawal of funds from your PayPal account.

While we are working hard to restore the electronic withdrawal service, in the meantime, we are bringing this matter to your attention so that you can plan your future withdrawal activities accordingly.
To request for a cheque withdrawal:

1. Log into your PayPal account, click on 'Withdraw'.
2. Click on the 'Request a cheque from PayPal' link.
3. Enter the withdrawal amount and select your mailing address, then click 'Continue'.
4. Click 'Submit' to confirm your request.

In order to help you with this change and until further notice, we will refund the $5 USD cheque withdrawal fee to you for cheque withdrawals made on July 29, 2010 onwards.

For any questions, please log into your PayPal account and click 'Contact Us' at the bottom of the page.

We apologies for any inconvenience caused from this change in our withdrawal functionality. We will provide ongoing updates to you here. We thank you for your attention and patience as we work tirelessly to resolve this situation as quickly as possible.

Thank you,

The PayPal Asia Team

Electronic Paypal withdrawals is definitely a convenient must-have feature, and all we can hope is that Paypal and Indian regulators sort this out soon to avoid inconvenience to users.