Odisha turns to payments banks, SFBs to tap unbanked areas

Fearing that commercial banks in Odisha with steep NPAs (non-performing assets) may face curbs from the Reserve Bank of India (RBI) to expand their network, the state government has turned to payments banks and small finance banks to set up branches in the unbanked areas.
 

Commercial banks in Odisha, especially the public sector lenders are battling alarming NPAs. Average NPAs of the banks in the state stood at 11.5 per cent (as on March 31, 2017). A clutch of public sector banks — Andhra Bank, Bank of Baroda, Central Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, Punjab National Bank, State Bank of India and UCO Bank— have gross NPAs exceeding nine per cent. Such banks are likely to face prompt corrective action  (PCA) measures from the RBI, as they are classified as second category offenders, breaching the prescribed threshold of nine per cent.  

“Due to the mounting NPAs, many banks are coming under PCA and there are some restrictions for banks to open new branches. The gaps will be filled up by the payment and small finance banks”, said a source in RBI. The Odisha government and officials of RBI’s regional office in Bhubaneswar met recently which saw the participation of six payments banks and five small finance banks. The small finance banks and payments banks from Rajasthan, Chennai, Bengaluru and Mumbai attended the meeting. 
 

Odisha is the first state to engage such banks in areas untouched by banking services. Tuhin K Pandey, principal secretary (finance) with Odisha government, said, “We had an initial meeting with the payments banks and small finance banks. They have shown interest to set up branches in the unbanked regions and have committed to submit detailed proposals within a month.”

Paytm, Airtel Payments Bank, Aditya Birla Nuvo, India Post and AU Small Finance Bank have evinced interest and have committed to submitting detailed plans within a month. The state government has handed over the list of 677 unbanked panchayats to be covered in three years and invited them to set up branches here.

Odisha has over 4,200 unbanked gram panchayats that are still untouched by banking services.