The government’s stand on the payments space ensures that “no one can make any money,” Axis Bank chief executive and managing director Amitabh Chaudhry said on Wednesday at the Global Fintech Fest in Mumbai. “What the government is doing is that they’re taking out the entire P&L (profit and loss) opportunity for us. So, if you look at the payments space, no one can make any money in the country at all,” he said, adding, “You have to use payments as a platform to make money somewhere else”. Axis Bank also runs the payments company, Freecharge.
We are keen and delighted to partner with fintechs who have alignment of purpose, a long term view, clear value proposition and an orientation to compliance and risk management. We fully realise that we will compete with them in certain areas too. We are a 5% market share player and remember we are the third largest private sector bank in the country. So there is ample room to grow. We have some marquee partnerships at scale – e.g. Flipkart, Gpay, Airtel and 80 other partnerships some of which are delivering good business outcomes. We will have more coming up starting next quarter.
Chaudhry’s comments come amid a debate on whether merchant discount rate (MDR) should be levied on the UPI platform. The government, which wants to popularise digital payments, has been insisting that no charges should be levied. The central bank recently came out with a consultation paper with introduction of MDR as one of the options, drawing an almost immediate rebuttal from the finance ministry.
Choudhry said banks and fintechs cannot earn revenues from payments, which is why fintechs have to use that platform to sell different products. The worry is that more and more of such demands will emerge, which will take away revenue and profitability pools and then only big entities can survive and small players will struggle, he said.
Also Read: HDFC Capital launches tech innovation challenge for affordable housing, to invest up to Rs 500 crore in winning deals
Priority sector lending (PSL) norms is yet another area where challenges have emerged. He said some of the sub-sectors in which banks are required to do lending do not make money. The bank spent nearly Rs 900 crore this year in buying PSL certificates to meet the 40% mandate, Chaudhry said.
The Reserve Bank of India (RBI) norms require banks to lend 40% of their overall credit to the priority sector, including agriculture, MSME, education, housing, social infrastructure, renewable energy and export credit.
Axis Bank recently partnered with technology-based company PayNearby to boost its credit growth in the segment and to meet its priority sector lending targets organically.
All banks typically achieve their overall PSL target. However, shortfalls are usually witnessed in certain sub-targets. While public sector banks have shortfall in micro enterprises, private banks have shortfall in lending to small and marginal farmers, ICICI Securities said in a report.
Private banks need to increase their government scheme-based lending, which is currently very low, Sanjay Malhotra, secretary, financial services, said earlier at an event.
The demand for PSL loans is set to rise as the overall credit growth revives. and due to the proposed merger of HDFC Bank and Housing Development Finance Corporation (HDFC), a domestic brokerage said in a report.