So Payments Banks are a go: the RBI has granted “in-principle” approval to 11 applicants for payments banks, from 41 applications that it received: Reliance Industries Limited, Paytm, Sun Pharma founder Dilip Shantilal Shanghvi (who partnered with Telenor and IDFC), Fino Paytech, Aditya Birla Nuvo, Department of Posts, Cholamandalam Distribution services (a financial services co), National Securities Depository Limited, and Tech Mahindra, apart from telecom operators Airtel and Vodafone.
The approval granted will be valid for 18 months, during which time the applicants have to comply with the requirements under the Payments Banks Guidelines. Following this, the RBI will consider granting a license for commencement of banking businesses “under Section 22(1) of the Banking Regulation Act, 1949. Until a regular licence is issued, the applicants cannot undertake any banking business.”
What Payments Banks can and cannot do
Apart from this, :
– Payments Banks need to have “Payments Bank” in its name to differentiate it from regular banks
– Can handle cross-border remittances of personal transactions or onthe current account.
– Offer remittance services through branches, ATMs, Business Correspondents and mobile banking. They can also become business correspondents of other banks.
Requirements from a Payments Bank
– Payments bank will be required to have at least 25% of physical access points including business correspondents in rural centres.
– The minimum paid-up equity capital of the payments bank shall be Rs. 100 crore.
– The payments bank shall be required to maintain a minimum capital adequacy ratio of 15% of its risk weighted assets (RWA) on a continuous basis. Tier I capital should be at least 7.5% of RWAs. Tier II capital should be limited to a maximum of 100% of total Tier I capital.
– The payments bank should have a leverage ratio of not less than 3 per cent, i.e., its outside liabilities should not exceed 33.33 times its net worth (paid-up capital and reserves).
– Payments banks will be required to invest minimum 75% of its “demand deposit balances” in Government securities/Treasury Bills with maturity up to one year that are recognized by RBI as eligible securities for maintenance of Statutory Liquidity Ratio (SLR) and hold maximum 25% in current and time / fixed deposits with other scheduled commercial banks for operational purposes and liquidity management.
– They will also be required to maintain a Cash Reserve Ratio (CRR) with RBI on its outside demand and time liabilities.
Shareholding and Listing of Payments Banks
Promoters of the payments bank should hold at least 40% of its paid-up equity capital for the first five years from the commencement of its business. If it’s a JV with a scheduled commercial bank, the banks can take equity stake in a payments bank to the extent permitted under Section 19 (2) of the Banking Regulation Act, 1949.
The foreign shareholding in the payments bank would be as per the Foreign Direct Investment (FDI) policy for private sector banks as amended from time to time. As per the current FDI policy, the aggregate foreign investment in a private sector bank from all sources will be allowed upto a maximum of 74%of the paid-up capital of the bank.
When the payments bank reaches the net worth of Rs.500 crore, diversified ownership and listing will be mandatory within three years of reaching that net worth. However, payments banks having net worth of below Rs.500 crore could also get their shares listed voluntarily.
RBI plans Payments Banks licenses “on tap”
In a note, the RBI said that its Committee of the Central Board (CCB) noted that “it would be difficult at this stage to forecast the most successful likely model in the emerging business of payments” and allocated licenses in a manner that multiple models could be tried out.
In future, the RBI intends to revise the Guidelines and move to giving licences more regularly, that is, virtually “on tap”.
Details of companies/entities that received the approval
– Reliance Industries Limited: owns telecom operator Reliance Jio, and got a prepaid payments license from the RBI in November 2013, but hasn’t used it yet. Earlier this year, Reliance Industries inked joint venture deal with the State Bank of India, in which SBI has 30%, to apply for the Payments Banks license. SBI has 16,000 branches in the country and the largest banking correspondent channel in the country, covering 75,166 unbanked villages and clocking in over Rs 17,000 crore through BC channel transactions.
– Paytm: is a mobile payments and commerce company Paytm. Paytm has a mobile payments and commerce business, and a semi-closed prepaid wallets license from the RBI, which it got in August 2013. The company said it has reached 100 million wallet users, and 75 million transactions per month. Alibaba’s payments business Alipay owns 25% in Paytm. Vijay Shekhar Sharma, the founder of Paytm, told MediaNama that the RBI announcement mentions him by name, and not Paytm, since he is the majority shareholder in the business.
– Dilip Shantilal Shanghvi, Telenor and IDFC: is the founder of Sun Pharmaceuticals. He had, according to an announcement, applied for the license along with telecom operator Telenor and IDFC. It’s worth noting that Telenor has worked with Sudhir Valia, also a director at Sun Pharmaceuticals, in the past. Valia had held shares of Uninor, a Telenor copany as its Indian partner via Lakshdeep Investments & Finance Pvt. Ltd, and later sold the stake to Telenor.
It was reported that Valia would have picked up 50% stake in payments business Pay Point India, if it had received an approval, which it hasn’t.
– Fino PayTech Limited: is backed by the World Bank’s IFC and Blackstone, and had acquired Nokia Money in 2012. Fino launched “Alpha payment services” in 2013. Rishi Gupta was appointed CEO of Fino earlier this year. Fino has deal with white labeled ATM provider Tata Indicash. FINO says it intends to invest Rs 300 Crore in the Payments banks business, and is looking to break even in the next 3 years.
– Airtel M Commerce Services Limited: is the mobile money business owned by telecom operator Bharti Airtel. Last week, Airtel acquired a Mumbai-based mobile payment startup YTS for an undisclosed amount, and appointed Manish Khera, MD & CFO at YTS, as the new CEO of Airtel Money. The company hasn’t disclosed how many users it has in India, but as per the last available data, for the quarter ended March 31, 2014, Airtel Money had 38 million transactions and 1.7 million active customers, transactions of Rs 1238.30 crore.
Airtel Money also has an Africa business, with 7 million users and transactions of $3.33 billion for the quarter ended June 30, 2015.
In 2011, Airtel had partnered with SBI for a mobile payments joint venture that went nowhere. This time, it has partnered with Kotak Mahindra Bank for the Payments Banks license. Kotak Mahindra Bank is expected to pick up 19.9% stake in the JV.
– Aditya Birla Nuvo Limited: Is the conglomerate from the Aditya Birla group which owns Idea Cellular, and had applied for a Payments Banks license in a 51:49 joint venture with Idea Cellular (pdf). It has a personal finance business called MyUniverse. Aditya Birla Nuvo Ltd reported revenues of Rs 7926 crore from the financial services business in FY15. Idea Cellular got a semi closed prepaid wallet license from the RBI in December 2013. Idea Cellular also has a partnership with Axis Bank to offer mobile money transfer services.
– Vodafone m-pesa Limited: As of December 2014 end, m-pesa India had 78,000 transactions per day, with 2.1 million registered users and 0.37 million active users in that quarter. Vodafone India informs us that it now has over 3.5 million users (registered, we guess), and 90,000 agents.
In 2013, it had launched M-pesa with ICICI Bank, and completed a pan-India rollout in May last year. Vodafone is among the most successful, when it comes to telecom operators enabling mobile payments. Its semi closed prepaid wallet license was renewed by the RBI in November last year. It also has a partnership with Walmart and Bharat BPO in India for enabling mobile payments for purchases. More recently, it partnered with the Government of Madhya Pradesh to facilitate mobile-based distribution of financial aid to mothers under the Janani Suraksha Yojana scheme, a part of the National Rural Health Mission.
– Department of Posts: The department of posts had earlier applied for a universal bank licence but was turned down by the RBI. The Indian government had set up a task force last year to explore ways of using the post office network. It had suggested a Strategic Business Unit for banking.
– Tech Mahindra Limited: Operates a pre-paid payment instruments (m-wallet) known as “MoboMoney”, which is an NFC based mobile wallet solution from group company CanvasM. TechMahindra, in April, launched NFC based payments for ICICI Bank.
– Cholamandalam Distribution Services Limited: offers a number wealth management products
– National Securities Depository Limited: was the first central securities depository in India, and holds demat shares.
Who hasn’t gotten an approval yet?
Some of these companies, which applied but haven’t yet received an in principle approval, may be next in line, once the RBI enables, as it says, licenses “on tap”.
– Novopay Solutions: A Khosla Labs incubated mobile payments solution provider, which offers Android-based mobile payment solutions to Kirana stores. It also uses Aadhaar-based biometric scanners to allow consumers conduct banking transactions, money transfer and mobile payments among others.
– Money on Mobile: My Mobile Payments Limited, a subsidiary of Calpian, which claims 121 M users and reported Rs 122 crore of transactions in December 2012.
– Mobikwik: One MobiKwik Systems Private Limited, which is a sister concern of Sequoia Capital backed payment gateway Zaakpay. Read our interview with their strategy head Mrinal Sinha here.
– Oxigen: Oxigen Services (India) Private Limited, which has launched mini ATMs, Mobile point of sales solutions, allows money transfer via social networks and more.
– Suvidhaa Infoserve: Suvidha Infoserve had launched Beam Money prepaid wallet and voluntarily surrendered its authorization and currently winding down its licence. Anand Shrivastav, Chairman at Beam Money had told Medianama that one of the major drawback of the wallet was that it did not allow users to withdraw money from the wallet, which is important for a consumer company.
-Vakrangee Limited: Also Has a licence for the installation and operation of white label ATMs
– Eko India Financial Service Private Limited: Operates as a business correspondent for State Bank of India (SBI), ICICI Bank and Yes Bank
–NSE Strategic Investment Corporation Limited (Subsidiary of National Stock Exchange of India Ltd.)
– Smart Payment Solutions Pvt. Ltd: Operates a pre-paid payment instruments known as “PayCash”
– Itz Cash Card: Itz cash operates pre-paid payment instruments known as “Pay on web”, “Mobile Wallet” and “Itz Cash BSNL trust Card”
– GI Technology Private Limited (I Cash Card)
-M.G. George Muthoot & others (Chairman, Muthoot Group): Operates a pre-paid payment instruments e-wallet known as “Muthoot Money” and m-wallet known as “Muthoot wallet” and has a licence for the installation and operation of white label ATMs
– Citrus Payment Solutions Private Limited* Operates Pre-paid payment instruments known as “Citrus Cash”. Also tied up with Meu Cabs to launch an in-app wallet.
– Kishore Laxminarayan Biyani: Founder & CEO, Future Group
-Rajib Saha: President & CEO Indepay Networks
– Videocon d2h Limited: Videocon d2h commenced DTH operations in July 2009 and has since grown to a gross subscriber base of 11.8 million and a market share of 16.5% in the Indian DTH market as of September 30, 2014. U.S.-based Silver Eagle Acquisition Corp (SEAC) hasinvested $33 million for a 33.5% stake in the company.
– Fx Mart Private Limited: Pre-paid payment instruments known as “FX Money”
– some typos corrected, lots of information added
– Vijay Shekhar Sharma informs us that it is Paytm that has received the license, and not Sharma, in his individual capacity.
– Added information about Telenor’s involvement in Dilip Shanghvi’s bid.
Disclosure: Paytm is currently an advertiser with MediaNama