Banking

Tech Mahindra third of 11 entities to drop payments bank idea

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Tech_Mahindra_With three of the 11 firms, which were granted licences by the Reserve Bank of India to launch payments bank, abandoning their plan idea to do so, questions are being raised over the central bank’s model of new payment banks.

The latest in the series to have dumped the idea to launch a bank is Tech Mahindra Ltd, which had applied and was awarded the licence to start a payments bank. The company’s officials say the long payback time on the investment is what dissuading them from going ahead with the idea.

According to a senior Tech Mahindra official, given the stiff competition in the segment, the already thin margins would vanish, thus making the proposition of launching a bank unviable one.

Responding to questions from scribes, C P Gurnani, Managing Director and Chief Executive Officer of Tech Mahindra, at a press conference said, “We still feel that it is a very large unserved market.”

Last week, a consortium of Sun Pharmaceutical Industries Ltd promoter Dilip Shanghvi, IDFC Bank Ltd and Telenor Financial Services abandoned their plan to start a payments bank. Earlier this year, Cholamandalam Investment and Finance Co. had backed out as well for reasons best known to them.

After the three pullouts, effectively there remain only eight payments banking entities: Aditya Birla Nuvo Ltd; Airtel M Commerce Services Ltd, a part of India’s largest telecom company Bharti Airtel Ltd; Department of Posts; Fino PayTech Ltd; National Securities Depository Ltd; Reliance Industries Ltd; Paytm founder Vijay Shekhar Sharma; and Vodafone m-pesa Ltd, a unit of Vodafone India Ltd.

Reacting to the withdrawals, an RBI Deputy Governor said the regulator is feeling “a little aggrieved” because of the effort that goes into processing applications. “After having done that, if they don’t materialise, that’s a disappointment,” he added.

Payments banks can collect deposits and offer different payment solutions to customers, but are not allowed to lend. RBI has also asked them to invest 75 per cent of their deposits in government securities, thus limiting their ability to earn. And, they will require to offer at least 4 per cent to attract customers.

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