Kolkata: After SBI chief Arundhati Bhattacharya recently raised doubts on the viability of payment banks on the basis of transactions alone, it was the turn of leading private sector lender ICICI Bank’s Chanda Kochhar on Wednesday to warn bankers against getting “paranoid” about these 11 niche banks that are expected to hit the Indian banking space in the next 18-24 months.
The Reserve Bank of India, in the third week of August, had granted “in-principle” approval to payment bank aspirants, including Aditya Birla Nuvo (joining hands with Idea Cellular), Airtel M Commerce Services (with Kotak Mahindra Bank), Cholamandalam Distribution Services, department of posts, Fino PayTech (partly owned by ICICI Bank), NSDL, Reliance Industries (with SBI), Sun Pharma promoter Dilip Shantilal Shanghvi (with IDFC and Telenor), Vijay Shekhar Sharma (of PayTM), Tech Mahindra (with Mahindra Finance) and Vodafone m-pesa.
“My belief is that disruption will in any case happen because of technology, because of what technology makes it possible. So, it is not because some other forms or entities are coming up that things will get disrupted,” Kochhar said in Mumbai.
There are many regulatory limitations of a payment bank licence — payment banks can accept up to Rs 1 lakh deposit per customer and invest excess cash only in government bonds. This means payment banks will earn lower margins than a traditional bank. They cannot compete with full service banks. Yet, many in the banking industry are worried about the advent and impact of this new tribe of lenders.
Kochhar pointed out that instead of payment banks or any entity, existing players should be worried about changes in technology that can cause major disruptions.
“Rather than worrying about entities, we should worry about the trends in technology that may cause disruptions...If we get so paranoid that banking is no longer going to exist and banks are going to get disrupted, I think that is a different worry. That may take you to a destructive kind of a thinking,” she said.
According to Crisil, rural and semi-urban areas today account for nearly 42 per cent of the savings deposits of the banking system, underscoring the large potential in these markets. While traditional banks are unlikely to lose customers who are easily accessible from their branches, those in remote locations are potential targets for payments banks.
Last week, while speaking about the role of technology in the Indian banking sector, SBI chairman Arundhati Bhattacharya, in an Indian Chamber of Commerce, event said.
“Technology is changing very rapidly. If you look at today’s younger generation who are going to be our customers in the next 20-30 years, they need service when they determine they want to and that could be 12 at night, it could be on a Sunday. You better be able to deliver. Because if you don’t, you will surely lose that customer and somebody will take it away. Not only that, today’s generation is comfortable dealing with people on screens.”
HDFC Bank’s senior executive vice president and branch banking head (west) Ravi Narayanan feels that new entrants, including payment banks, may not give competition immediately.
“Building a customer base requires integrity in efforts over a sustained period of time with consistent customer experience. Existing businesses with large customer base need to build the capability to create an enriched relationship with a larger share of this base,” he said in an interview.
That said, even a small dent in the big pool called Indian banking system can be big enough for some players. Even if payment banks are able to gather around 10 per cent of rural savings deposits from areas that have banks, and from unbanked areas served by chit funds and other non-banking channels, the opportunity to attract savings deposits will be in excess of Rs 1 lakh crore over the next five years, studies have estimated.
Asked about the advent of new players like payment banks, Rajiv Anand, group executive & head retail banking at Axis Bank recently told Financial Chronicle.
“Competition comes to us from various sources. On the digital side, we have non-banks who are competing in some parts of business. Some of the universal banks are competing in some parts, the new payment banks will also compete...We are prepared to out-perform the industry”.
Financial inclusion was what drove introduction of payment banks in India. Compared with global averages, India has a low credit/GDP ratio of 75 per cent but a high gross domestic savings rate of 29 per cent. Much of these savings get converted to real assets (like gold, real estate, cash) and never make it back to a bank account, given the low penetration of banking services.
“India needs more banking. Payment banks, small finance banks....By opening up the banking industry to more entities, RBI has done the right thing. India is heavily under-banked. For instance, Qatar has as many as 17 banks for 2.4 million population...its over-banked here (in Qatar),” Doha Bank chief executive R Seetharaman said in an interview.
PayTM’s Vijay Shekhar Sharma did not respond to request for a comment.
Morningstar analyst Suruchi Jain feels that the four top telecom players in terms of market share (which together account for nearly 700 million mobile phone subscribers in the country as of December 2014) and the department of posts (which already acts as a quasi-bank, with approximately 120 million savings customers) are most likely to win the payment banks race.
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