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Payments bank applicants sense opportunity in financial inclusion drive

The 11 applicants, who on Wednesday received an in-principle nod from the RBI to set up non-lending payments banks, said they sensed a huge opportunity in the model and that the business would be volume-driven and leveraged on technology.

Speaking to a business news channel, Dipak Gupta, joint managing director, Kotak Mahindra Bank — which has teamed up with Bharti Airtel — said the model would not survive on float alone. “Ten per cent will come through float and 90% out of fees,” he said. In an earlier interview, Gupta had told FE that the opportunity for deposits would be limited initially because it was not a part of mainstream money flow.  “It is small-ticket but (with) large-volume money flow,” he had said, adding that all one needed to set up a payments bank was technology, which would be a Rs 10-crore investment.

Reliance Industries, which has partnered State Bank of India (SBI), has also received RBI nod for setting a payments bank. B Sriram, MD, SBI, said there was space for everybody and, while there would be competition, SBI’s advantage lay in its reach, number of customers and technology.

The payments bank model allows a company to access a large tranche of funds without the associated risks of lending, making it an attractive proposition for those wanting to be in the banking sector.

Vellayan Subbiah, managing director, Cholamandalam Investment and Finance Company, said the firm had got a couple of models in mind that did not require a partnership.

He added that the digital combination with a physical player made a lot of sense. “A physical infrastructure is required in the payments space, especially because what we are going to do is move a lot of cash-based payments to digital payments over time, which basically means that handling of cash at that point of interchange is still required,” he said.

Fino Paytech — another applicant that received RBI’s approval — has 90% of transactions in cash, which are estimated to run into trillions. The company believes there is a huge opportunity for payments banks to power these transactions electronically. “We intend to invest over R300 crore and look to break even in the next three years,” said Rishi Gupta, MD & CEO, Fino Paytech. Vijay Shekhar Sharma, founder, Paytm, said the company wanted to launch a payments bank much earlier and use technology to stand out amid competition.

“I believe that this is an opportunity and this is a newer space where we might be the fastest kid, but we want to run our marathon,” he said, adding that the company could run the payments bank in a standalone manner. “Paytm has 100 million users; we don’t need anyone for reach. Around 40% of our customers are in urban areas and 60% in rural; so, we will start with urban (areas),” said Sharma.

It is understood that Dilip Shanghvi, managing director, Sun Pharmaceutical Industries, is going to tie up with Telenor and IDFC for the payments bank.

Airtel M Commerce Services and Vodafone M-Pesa were also granted licences by the RBI. An Airtel spokesperson said the company was confident that this move would play a pivotal role in bringing millions of unbanked Indians into the banking fold and looked  forward to contributing in a meaningful way and further the government’s larger financial inclusion agenda.

Sunil Sood, MD & CEO, Vodafone India, said that with 90,000 M-Pesa agents, the company was already providing people in remote areas (a medium) to transfer money and make payments in a safe and secure manner.

“We have partnered with several government bodies to run pilots for enabling direct transfer of wages and subsidies,” said Sood. In an earlier conversation with FE, Aditya Puri, MD, HDFC Bank, had said they were waiting to see how payments banks operated and how they proposed to deliver the money. “If we believe it’s a good model, we can always apply for a licence later because it should be available almost on tap,” he said.

* RBI giving payments banks licences is a significant and important step. Payments banks will reach out to people in rural areas, finance minister Arun Jaitley said
* He said payments bank will ensure more money comes into banking system. “Various banks are looking at  increasing their rural reach, including big banks like SBI. Payments banks will help them realise this”

Financial inclusion gets a leg up


** Initial capital requirement: Rs 100 crore
* Eligibility: Entities and individuals must have 10 years of experience in finance and banking
* Existing microfinance companies, NBFCs can convert into small banks
* Large PSUs, industrial houses and     NBFCs floated by them cannot apply
* Promoter contribution: Initially must be 40%; to be brought down to 26% over 12 years
* Foreign holding: Up to 74% of paid-up capital, on a par with private banks
* Capital requirement: Minimum capital adequacy ratio 15% with minimum Tier-I capital of 7.5%
* Lending business: Restricted to small businesses, marginal farmers. Priority sector lending target 75%. 50% of loanbook must be of those up to Rs 25 lakh
* Maximum exposure: For single borrower, limited to 10%; group exposure, limited to 15%


* Initial capital requirement: R100 crore
* Eligibility: Existing pre-paid payment instrument issuers, individuals, professionals, NBFCs, corporate business correspondents, telecom companies, super-market chains, real estate sector cooperatives that are owned and controlled by residents and public sector entities may apply
* Promoter contribution: Initially must be 40% for the first 5 years.
* Foreign holding: Up to 74% of paid-up capital, on a par with private banks
* Capital requirement: Must maintain CRR, minimum 75% of demand deposits in government bonds of up to one year and maximum 25% in current and fixed deposits with other scheduled commercial banks for operational purposes and liquidity management
* Lending business: Cannot lend
* Deposit per customer: Capped at Rs 1,00,000

* Issue ATM/debit cards
* Offer payments, remittance services and distribute financial products like MF and insurance
* Issue credit cards
* Must extend 75% of its Adjusted Net Bank Credit (ANBC) to sectors eligible for classification as priority sector lending by RBI
* At least 50% of loan portfolio should constitute loans and advances of up to Rs 25 lakh

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