With the payments bank model not having evolved in the expected manner, industry participants have approached the Reserve Bank of India to relook at the regulations.

Industry participants point out that unlike the other categories of banking channels such as small finance banks and universal banks which have seen significant changes to their respective licensing guidelines from the time that they were brought into force, the payments banks space has not had much progress in terms of their operational framework.

“Since the time these banks were conceptualised, licensed and became operational, much has changed in the payments industry. But the laws governing payments banks have almost remained the same,” said a senior executive of a payments bank who didn’t want to be named.

‘Not a revenue stream’

Stating that it is no longer a question of existence but opportunities for scalability, sources said payments banks have approached the banking regulator to allow them to operate in the small-ticket retail loans space.

“Ultimately, if we have to build a balance sheet, we need to focus on building assets and that cannot be done in the current framework,” said a CEO of a payments bank.

“This is becoming a limitation to build a deposit book because unless there are deployment avenues, raising them (deposits) is only an additional cost for us, not a revenue stream,” he added.

Why lending?

Players in the payments banks space believe that allowing them to tap in on small retail loans market may help them differentiate from banking correspondents, payment aggregators and other players in the payments ecosystem.

Further, only to depend on treasury gains from government securities may not be a viable option from the deposit deployment perspective.

However, it is believed that the RBI is to hesitant to allow these players in the lending arena. “Some of them are promoted by large conglomerates and with payments banks having the option to convert into small finance banks, it may mean backdoor entry into the prime banking business,” said a person aware of the matter.

To put things in perspective, payments banks can now raise up to ₹2 lakh of deposits from customers; limited to ₹1 lakh until 2021. However, now with the interest rate cycle turning positive, it has helped banks realise float income from these deposits, which has in turn helped most players barring the state-owned India Post Payments Bank to close FY23 with net profits.

In August 2015, the RBI awarded 11 payments bank licenses, of which five entities surrendered their licenses without even commencing the business, leaving only six active players in the segment at present.