Payments Bank positive but biz model critical, say experts

The RBI’s draft guidelines on payments and small banks are a positive step towards achieving financial inclusion, though the execution of a viable business model needs more innovation and technology, experts say.

The RBI on Thursday released guidelines on issuing licenses to these banks to facilitate financial services to the under-served and un-banked population of India.

Such differentiated banks were first proposed by the Nachiket Mor Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households in January this year.

The former chairman and managing director of Bank of Baroda, MD Mallya, said, “The move has plenty of potential, especially in the rural and semi-urban areas. However, the players need to execute a proper business model which is viable in the long run. With one specialisation, the entities need to work out an affordable business model where technology could play a major role in terms of innovative products and better management information system.”

Potential players to start a Payments Bank could be India Post, FINO Paytech and Muthoot Finance, among others. FINO Paytech and Muthoot Finance said it was a welcome step and may apply after internal discussions.

Rishi Gupta, COO and ED, FINO PayTech said, “We believe this is an interesting phase in the Indian banking industry and we look forward to be a part of this eco-system. It is good for companies working in specialised areas. We will require to further analyse the guidelines and subsequent business models, before taking any call.

“Also, the ₹100 crore capital requirement shows more serious and well-capitalised players are likely to participate. The services referred to by guidelines are largely being covered by us. Though, we need to look at the guidelines on the promoter’s stake of 40 per cent and the requirement of corporate business correspondents’ five-year track record eligibility criteria,” Gupta added.

George Alexander Muthoot, MD, Muthoot Finance, said, “We believe Muthoot Finance can play a larger role in this, considering our reach in the rural hinterland with almost 60 per cent of our presence in the rural areas. Our board will meet to discuss this development in detail including the criteria laid down by the RBI.”

According to Jamuna Rao Verghese, Advisor - Inclusive Markets Financial Services at PwC India, “The announcement definitely unlocks the need and potential for payments business. However, the business economics can be a challenge and players need to build a long term vision for customer adoption and the trust factor needs to be met. Also, though ₹100 crore can be too much, the demand deposit acceptance can compensate to some extent.”

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