Reliance Industries Ltd (RIL) will partner State Bank of India (SBI) for setting up a payments bank. RIL has applied for the licence where it will be the promoter and SBI will be the joint venture partner with equity investment of up to 30%. The last day for submitting the proposal, February 2, 2015, saw many big groups like Aditya Birla Nuvo, Future group, Fino PayTech applying for licences. Telecom major Bharti Airtel last week announced its plan to start a payments bank in association with Kotak Mahindra Bank.
Payments banks are those that can accept current and savings deposits. They would initially be restricted to holding a maximum balance of Rs 100,000 per customer. Based on performance, the RBI could enhance this limit. The banks can offer payments and remittance services, issue prepaid payment instruments, internet banking, and function as business correspondent for other banks.
While they can also offer debit cards and ATM cards they cannot issue credit cards.
Aditya Birla Nuvo, the biggest shareholder in India's third-biggest mobile operator, Idea Cellular Ltd, is also planning to own 51% of the bank, while Idea will own the rest. Idea can later raise its holding to 60%. India's home grown retail chain Future Group, has also applied on Monday for a payments bank permit. The group said the banking entity will be called NuFuture Payments Bank. Big Bazaar has physical presence in 168 cities across the country and rural locations in Gujarat and Punjab through its retail networks like Big Bazaar, KB's, Nilgiris, Big Bazaar Direct and rural distribution network, Aadhaar, among others.
SBI and RIL, in a joint release, said, "The payments bank will leverage SBI's nationwide distribution network and risk management capabilities along with the substantial investments made by RIL in its retail and telecom businesses. It will deploy state-of-the-art technology, build scalable infrastructure and create extensive branch and business correspondent network in order to provide last-mile access and intuitive user experience to all sections of society.
Aman Bhargava, director, financial services advisory, Grant Thornton India LLP, said, "Payments banks are meant to derive their income from transactions (inter-change) as opposed to the traditional banking mindset of float income, or income from interest rate spreads. This calls for a new banking paradigm. The basic tenets for a successful payment bank calls for high quality, low cost of delivery, regular education and incentivisation of customers to make cash-less transactions a part of their daily spending habits, and a robust technological framework. Essentially the cost of transactions, for a payment bank, needs to be significantly lower (1/10th) of a traditional branch-based banking model paradigm."
Crisil Research last week said in a release, "There is a strong business case for payments banks in India because a sizeable portion of the country's population remains outside the ambit of formal banking. We believe telecom operators are the ideal candidates to set these up, given their significant customer base in rural areas and well-entrenched distribution networks. Moreover, they are already offering mobile wallet (m-wallet) services for remittances.
The value of transactions through m-wallet has more than tripled in the last two years to over Rs 2,700 crore in the last fiscal, indicating the huge business potential. Setting up a payments bank also makes strategic sense for telecom operators as it would help them improve the 'connect' with customers, and also, over a period of time, obtain a greater share of their wallet."
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