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Aditya Birla Payments Bank to shut down due to “unanticipated developments in business landscape”

payments, digital payments

Aditya Birla Payments Bank will wind up operations due to “unanticipated developments in business landscape” that made its economic model “unviable”. The company had begun operations only 17 months ago. The announcement was made by parent company Vodafone-Idea in exchange filing on July 19. Total customer deposits with Aditya Birla payments Bank stands at Rs 20 crore. Operations will continue for a limited number of banking transactions so that customers can withdraw and transfer their balances, further credit to the accounts will be restricted from July 26. MediaNama has reached out to the company for comment and will update this when we hear from them.

Aditya Birla Payments Bank had received the banking license from the RBI on April 3, 2017, for carrying on the business of a payments bank and had also received an authorisation to carry on the business of Prepaid Payments Instrument. It commenced business from February 22, 2018.

Payments banks in losses

The RBI had originally awarded 11 payments bank licenses in February 2015, out of which, four licenses were returned, leaving 7 operational payments banks. Aditya Birla Payments Bank’s shut down will bring that number down to 6.

Payments banks have been recording losses for some time now. In January, the RBI said in its trends and progress report 2017-18, that payments banks had recorded losses for two successive years. The consolidated balance sheets of payments banks showed net losses of Rs 516.5 crore in FY17-18, almost double from the previous year, when they lost Rs 242.2 crore. The operating profits of these banks also remained negative, with losses of Rs 522.1 crore in FY17-18, up from Rs 240.7 crore the previous year, the RBI report said.

A challenging business model

Conceptualised by the RBI in 2014 to extend banking services to those unserviced by traditional banks, payments banks are a new model of banks in which deposits are restricted to Rs 1 lakh. They also offer remittance services, mobile payments, ATM/debit card facilities and third-party fund transfers but cannot issue loans or credit cards.

Apart from that, RBI’s master circular on prepaid payment instruments (PPI), released in February, directed that users who do not complete the full KYC process will not be allowed to load money into their wallets – this requirement has made customer on-boarding expensive for payments banks, who have been urging the RBI to look into video KYC as a possible alternative to in-person KYC in order to reduce costs.

Also read: RBI needs to constitute a committee to look into the future of Payments Banks

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