According to Asia Times, the company has let go about 1,200 employees in India "and plans to shed a similar number in the next four months".
According to Oyo, it is lying off poor performers and has set up a "meritocracy-based" performance evaluation programme.
Attempts for a detailed statement from the company on the current controversy went unanswered.
According to reports, SoftBank has given Oyo a deadline of March 31, 2020 to phase out contracts or businesses, which are not EBITDA-profitable.
The company has a deadline to post positive Earnings before interest, tax, depreciation and amortization (EBITDA) for its self-operated hotels and July as the deadline for positive EBITDA of its ancillary businesses.
"The decision to layoff such a huge number of employees can also be attributed to the plans of Oyo to list publicly in the US within the next three years," the report added.
Founded in 2013, Oyo's self-operated business includes Oyo Townhouse, Silverkey, Collection O, Oyo Flagship and Oyo Homes and ancillary businesses include Weddingz.in.
SoftBank's Vision Fund has so far invested about $1.5 billion in Oyo, pushing the hospitality company's valuation to $10 billion but learning from WeWork fiasco, the Japanese conglomerate is now looking at the companies it financially back from a different lens.
Also backed by Airbnb Inc., Sequoia Capital and Lightspeed Venture Partners, Oyo currently works with 10,000 hotel owners in the country.
A New York Times report recently quoted current and former Oyo employees as saying that the company was "indulging in questionable business practices".
The article claimed the "SoftBank Jewel in India" is facing toxic culture and troubling incidents. "While Ritesh Agarwal's Oyo aims to be the world's biggest hotel chain, its growth was fuelled by questionable practices, employees said," as per the report.
The hospitality chain denied the allegations, saying it is committed to "growing the right way" by meeting the needs of property owners and guests.
"With regard to complaints of a small section of property owners in India whose payments are disputed, multiple escalation mechanisms exist and we continue to provide resolution," said the company.
The company reported a loss of Rs 2384.69 crore in the financial year 2019 a 5.5 times jump from Rs 360.42 crore loss in the previous financial year.
"We are committed to growing OYO the right way by meeting the needs of property owners and of the guests we serve together. We work hard every day to ensure that our values are upheld by thousands of committed employees around the world, and we are subject to regular external audits to ensure proper compliance and adherence to our Code of Conduct," an Oyo spokesperson said in a statement earlier this month.
( With inputs from IANS )