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Another Payments bank license surrendered: Telenor, IDFC Bank and Sun Pharma promoter consortium quits

piggy bank

Sun Pharma promoter Dilip Shangvi who had partnered with IDFC Bank and telecom operator Telenor to start a Payments Bank, has surrendered his license, reports Mint. Shangvi had received an in-principle approval from the Reserve Bank of India (RBI) in August 2015. In a joint statement, the three partners said that they would be communicating their decision to the RBI and not pursue a payments bank. It however did not specify a reason for why it would not commence payments bank operations.

Not the first to quit

RBI had permitted 11 entities to start a payments bank, with this development the list is down to nine.

In March this year, Cholamandalam Investment and Finance Company had decided to abandon its plans to set up a payments bank, saying that the decision came from the board  after “considering competition and other factors, including the long gestation period”.

Issues with the Payments Bank license

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Payments banks cannot undertake any lending operations. However, they can offer other non-risk sharing simple financial services activities, not requiring any commitment of their own funds, such as distribution of mutual fund units, insurance products, pension products, etc.

They will also have to invest minimum 75% of its “demand deposit balances” in Government securities or Treasury Bills with maturity up to one year 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.

Commencement of operations by other players

So far, three players have announced the date by when they would be starting their payment bank operations. Information and communications minister Ravi Shankar Prasad announced that India Post would be beginning its operations from March 2017, as indicated by this PTI report. Paytm has set a target of August 2016 to commence operations while Airtel will be starting its payments bank operations by the second quarter of this financial year.

Developments in the space

– In February, alternate banking channel company FINO PayTech signed an agreement with Reliance Commercial finance to offer credit to rural poor in the states of Maharashtra and Madhya Pradesh.  RBI’s guidelines explicitly state that a payments bank cannot undertake lending activities. As such, FINO will only be providing disbursement services for Reliance Commercial Finance and not actually provide the loan themselves.

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–  In January, the Department of Posts said it would be setting up 1,000 ATMs and install a core banking solution at 25,000 post offices by March 2016.

Image credit: Flickr user Philip Brewer under  CCBY license.

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