Bharti Airtel, Tech Mahindra gain after payments banks nod

Tech Mahindra was among the 11 entities successful applicants that received the Reserve Bank’s nod to set up payment banks as part of financial inclusion drive.

So, the argument goes, technology will help bridge the last mile as it were, allowing payments banks to access millions of customers now not within the fold of the formal financial system.

India-based digital bank Paytm has got approval from the country’s central bank and regulator, Reserve Bank of India (RBI), to become a “payment bank” as the country looks to embrace new technology and boost economic growth.

They will be responsible to provide small savings accounts to its customers.

According to RBI, the in-principle approval will be valid for 18 months, during which the applicants have to comply with guidelines and fulfil other conditions as may be stipulated by it. The payments bank licence means the companies can offer services such as deposits, withdrawals and transfers, but may not engage in lending. RIL has a tie-up with State Bank of India (SBI) for the payments bank roll-out.

“We see this licence as an opportunity to promote financial inclusion by providing banking and transaction services to unbanked, under-banked and small businesses”, said Arundhati Bhattacharya, chairman of SBI, which will have a 30 percent stake in the planned payments bank.

The aim is for payments banks to piggy-back on existing retail or other networks.

“Commercial banks will be keen to tap the potential of payment banks”.

It will provide high interests to the customer, while the government can expect to borrow more cheaply with a reduction of short-term rates due to the steep impact of additional money coming into payment banks which can only be invested in government securities.

As per RBI, those who are left out from getting the payments banks license in the first phase stand a chance to secure the same in successive rounds. These banks will primarily take up basic banking activities in defined geographies and cater to small business units, marginal farmers, and shop-keepers, among others. Individuals can make daily or monthly cash transactions either through debit card or through their mobile. But so far, such mobile wallet services have not allowed consumers to withdraw cash; this required a tie-up with a bank.

Mobile operators like Bharti Airtel and Vodafone India diversifying into the payments banking business could significantly lower their subscriber churn as those opting for mobile money services are unlikely to leave in a hurry.

In 2013, the RBI identified the need for a financial inclusion push, making banking services available to more indians, particularly the rural populations, small businesses, low-income households, and migrant workforce, whom still relies on solid cash rather than utilising the banking services.

“The payment bank licence will enable us to build on this further and offer a more comprehensive portfolio of banking and financial products and services, accelerating India’s journey into a cashless economy”, Sunil Sood, MD and CEO, Vodafone India, said in a statement.