RBI takes banking to the unbanked, grants nod to 11 payments banks

Leading telecom companies such as Vodafone, Idea Cellular (Aditya Bilra Nuvo) and Airtel have bagged licence to operate payments banks in India. India's largest conglomerate Reliance Industries, which is forming a joint venture with the biggest bank State Bank of India, has also received licence for the niche bank.

These companies are among the first batch of 11 licences handed out by the Reserve Bank of India (RBI). Payments banks are expected to expand the ambit of the banking system in the country.

Other applicants that have been awarded the licence include Cholamandalam Distribution, Department of Posts, Fino PayTech, National Securities Depository and Tech Mahindra. Apart from this, two individuals have also been awarded the licence -- Dilip Shanghvi of Sun Pharma and Vijay Shekhar Sharma, promoter of mobile wallet - Paytm, which is partly owned by Chinese retail giant Alibaba's affiliate Ant Financial.

These companies selected will be given "in-principle" approval for 18 months, after which they will be given licences if they fulfill all conditions stipulated by the RBI.

Most telecom companies are already working like mini banks helping people in remittances, fund transfers and to have mobile wallets. Bagging the license helps them accept deposits of Rs 1 lakh and can offer current and savings account deposits, issue debit cards and offer internet banking. They however cannot lend or issue credit cards.

Players like FinoPay Tech Ltd and Cholamandalam Distribution Service Ltd are already working as business correspondent of banks in rural India.

Department of Posts, which already runs a successful and widespread savings bank, has also given a payments bank license. A senior postal official said, "We should have been given a commercial bank license. The payment bank does not make sense when we already operate a successful savings bank operating the public provident fund (PPF)."

Arundhati Bhattacharya, chairman, SBI, said RBI has granted payments bank license to RIL in which SBI has proposed a 30% stake. "This partnership brings together the combined strengths of two of India's Fortune 500 corporations committed to making a transformative impact on India's financial inclusion landscape. We see this license as an opportunity to promote financial inclusion by providing banking and transaction services to unbanked, under- banked and small businesses," said Bhattacharya.

The central bank said it received 41 applications. Those who have not got a license in this round stand a chance in the next, said the RBI.

"Going forward, the RBI intends to use the learning from this licensing round to appropriately revise the guidelines and move to giving licences more regularly, that is, virtually "on tap". The RBI believes that some of the entities who did not qualify in this round, could well be successful in future rounds," it said in a release.

Most players will have a tie-up with banks while setting up their payments banks. In the next 18 months, the time RBI has given to the players to set up the niche bank, there will be hectic parleys with banks for the tie-up. It is a win-win for banks as also the tie-up will help them fulfill the financial inclusion targets and also priority sector lending targets.

Rishi Gupta, managing director and chief executive officer of FinoPay Tech, told dna, "ICICI Bank, LIC, Indian Bank and Corporation Bank are our major investors. We will now go back to our board and decide on the partnerships. We are covering about 100 million households in almost all states of India. We are already reaching the unbanked in the remote parts of the country, the license will give a further boost to our activities."

Sunil Sood, MD & CEO, Vodafone India, said in a statement, "With over 90,000 'M-Pesa' agents, we are already providing people in remote areas a convenient way 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/subsidies. 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."

Airtel has already formed a joint venture with Kotak Mahindra Bank -- Airtel M Commerce Services.

Dipak Gupta, joint managing director, Kotak Mahindra Bank, said, "We have agreed to invest 19.9% in Airtel M Commerce which has received in-principle approval from RBI for setting up a payment bank. Payment banks will play a crucial role in fulfilling India's financial inclusion agenda, and have the potential to change the paradigms of retail banking especially in the payments space. They will also promote the habit of savings by driving cashless transactions."

VijayShekhar Sharma, founder and CEO, Paytm, said, "We have managed to significantly reduce the cash usage in the economy. With this nod from the RBI, we will be able to further drive our overall commitment to financial inclusion for the unbanked segment, modernise payment systems and build more trust for our services."

The process for selecting the applicants was detailed scrutiny undertaken by an External Advisory Committee (EAC) under the chairmanship of Dr Nachiket Mor, director, Central Board of the Reserve Bank of India. "The recommendations of the EAC were an input to an Internal Screening Committee (ISC), consisting of the governor and the four deputy governors. This Internal Screening Committee drew the final list.