Will payments bank make conventional banks run for cover? Nah, never

By Surya Narayan Pradhan

Bhubaneswar: With the approval from the Reserve Bank of India (RBI) to e-commerce and payment system company Paytm to start payments bank services in the beginning of 2017 followed by the launch of Airtel Payments Bank services across the country, the Indian financial ecosystem is ready to offer its citizens a wide array of options to carry out banking transactions, including deposit money and make payments, earn interests on their savings and undertake remittances at kiosks located closer to their home instead of going to bank branches mostly in urban and semi-urban areas.

As per banker Ramesh Chandra Khadanga, “The payments bank will operate in a brick-and-mortar manner, instead of acting as a virtual bank. RBI has given a licence for setting up of payments bank with the sole purpose to extend banking services in unbanked areas, thereby bringing more people of the country under the financial system.”

Seeing lots of opportunities for payments bank to do business, IDBI general manager Anirudha Behera states, “In banking sector, any new entrant can eye for a pie of the untapped business scopes in the country estimated to be 60%.”

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Behera adds, “Despite the fact that the Indian financial market is robust, banks operating in India are yet to tap the wealth of many people residing in the country.  Undoubtedly many transactions are happening outside the purview of the Indian banking system.”

In this backdrop, someone gets a sense that payments bank will do a brisk business in days ahead while adding a new chapter to the Indian financial system.

Begging to differ, Behera opines, “To expect that payments bank will earn a handful profit in next 5-7 years is a daydream only. To establish its business model only, a payments bank will take considerable time due to the limitations imposed on them by the RBI including no lending power and Rs 1 lakh cap on deposits for each account holder,” adding that usually commercial banks get a significant chunk of their revenue from interests paid by customers including corporates on loans taken.