Ratings and research firm Crisil today said east, north-eastern and central India will gain the most from payments banks while the market share of existing banks is unlikely to be impacted.
“Crisil believes that east, north-east and central India offer a natural habitat for payments banks because of under-penetration of formal banking in these regions,” it said in a release.
It said eight of 17 states in this geography have a Crisil Inclusix index score below 40, compared with the all-India average of 50.1 as of March 31, 2013.
“Payments banks will open another alternative channel after Internet and mobile banking, and help improve efficiencies and reduce costs involved in catering to customers in rural and semi-urban areas.
“However, we do not expect them to significantly dent the business of existing banks, given that their services would largely focus on under-banked areas,” said Pawan Agrawal, Chief Analytical Officer, Crisil.
There could also be a positive rub-off on existing banks partnering with payments banks through increased access to unbanked and under-banked areas in a cost-efficient manner.
Bank credit to GDP in the east, north-east and central India is less than 60 per cent, compared with 77 per cent for all-India, it added.
For payments banks, success will be a function of ability to generate transaction volumes, having a business structure that’s light on overheads and smart on technology, and on the ability to extract fees from clients.
But building franchise and managing operational risks while offering last-mile connectivity will be a challenge.
Crisil said fees from domestic remittances, spread on savings deposits, fees from acting as business correspondents and transaction fees through e-commerce and debit card usage are the four key areas of opportunity.
The major volume opportunity is in domestic remittances, where more than half of the transactions is conducted through informal channels.
However, migrant labour workforce may be wary of shifting to formal channels to send money home, and KYC and other documentation could be hurdles, too, it said.
It said traditional banks are unlikely to lose customers who are easily accessible from their branches, but those in remote locations are a potential bait for payments banks.
“Even if payments banks are able to gather around 10 per cent of rural savings deposits from areas that have banks and from unbanked areas served by chit funds and other non-banking channels, the opportunity to attract savings deposits will be in excess of Rs 1 lakh crore over the next 5 years,” said Raman Uberoi, Business Head, Crisil Ratings, in the statement.