Airtel Payments Bank has received approval from the Reserve Bank of India (RBI) and the central government to raise its foreign ownership limit to 74%, two people aware of the development told MediaNama on the condition of anonymity. The development was first reported by CNBC Awaaz. Airtel did not respond to queries sent by MediaNama.
The payments bank, which is owned by Sunil Mittal-led Bharti Airtel, was the first of its kind to launch in 2016-17. Given its massive network as a telecom player, the company was able to launch as a digital-only bank and garner a large number of deposits in a short amount of time.
Payments banks could convert to SFBs depending on RBI policy
In a meeting with Goldman Sachs last month, Mittal said that the payments bank plans to convert to a Small Finance Bank (SFB) in due course and become a full-fledged banking entity. “At some point in time, it will look to get its payment bank license upgraded to (that for) small finance bank, which could enable lending and increase deposit sizes (currently restricted to $1,500),” the Economic Times quoted Mittal saying.
His comments came a few days after an RBI working group recommended that payments banks be allowed to convert to a SFB after a period of three years of operations. This is a relaxation of the RBI’s on-tap licensing guidelines for SFBs, which stated that payments bank can convert after completing five years of operations.
If the working group’s recommendations are accepted by the RBI, leading payments banks like Airtel will be able to convert to an SFB in the coming years. This would allow to to collect larger deposits on the savings side, open term deposits for customers and begin using these funds to lend credit to their customers. As an SFB, the payments bank would incur a lower cost of funds against which it can provide loans through which it earns interest income.
At present, payments banks’ can only offer deposits to customers up to ₹1 lakh per customer and cannot lend; their business model depends on charging for payments transactions and cross-selling other financial services like payments, insurance and investments. In the case of Airtel Payments Bank, around ₹400 crore of its revenues came from commissions and fees in 2019-20, according to the banks’ financial statements.
Without an ability to earn interest income through loans like a regular bank, until recently every payments bank was running at a loss due to the high cost of operations. Out of a total of 11 entities that received a license from the RBI to start a payments bank back in August 2015, only six are operational today. They include Airtel, India Post, Fino Payments, National Securities Depository Ltd, Reliance Jio and Paytm.
According to the Airtel’s annual report for 2019-20, Airtel Payments Bank had a little over 14 million active users as of March 2020.
The banks’ financial statemenst show that it had ₹345.25 crore worth of deposits as of March 2020, compared to ₹270.6 crore in the previous year. It earned ₹474.4 crore in revenues during FY20, up from ₹254 crore in the previous. The company made a net loss ₹1,577 crore in FY20 compared to a loss of a little over ₹1,100 crore in the previous year.