Profit pressure stops Tech Mahindra's payments bank plan

Cholamandalam and Dilip Shanghvi had also announced they would surrender their licences

Tech Mahindra has become the third entity to announce it was surrendering its payments bank licence.

Pressure on profitability is supposed to be one of the key reasons for surrendering the licence. “Tech Mahindra Ltd has informed the BSE that the board of directors of the company at its meeting held on May 24, 2016, has decided that the company will not pursue this opportunity,” said the company in a notice to the exchanges.

The company has partnered with Mahindra Finance for this venture and had said they would be ready by October-November this year.

Earlier, Cholamandalam and the Dilip Shanghvi-IDFC Bank-Telenor Financial Services combine had announced that they were pulling out of the payments bank venture.

C P Gurnani, managing director and CEO of Tech Mahindra, said: “Unfortunately, due to competitive pressures, margins started getting squeezed so much that we realised the payback period has become very, very long. The question that Mahindra Finance and us sat together and asked is, is this our priority? Is this something where the capital allocation is appropriate? Or should we let this opportunity pass and hope that there will be other areas where we can collaborate and work together, like block-chain technology or creating other digital solutions instead of becoming a payments bank?”

The company had started preparing a strategy for entering the market and was preparing the technology. However, he added, they decided against proceeding further but still believe that there was huge scope for tapping the market.

Last year, the Reserve Bank of India had given an in-principle licence to 11 players. After the exit of three, those still in play are a Reliance Industries-State Bank of India combine; Aditya Birla Nuvo (Idea Cellular), Airtel, Vodafone, Department of Posts, FINO PayTech, National Securities Depository Ltd and Paytm (Vijay Shekhar Sharma).

Vaibhav Agrawal, vice-president research, Angel Broking, said: “There are too many payments banks but telecom companies — having deep pockets and large, sticky customer base — have an upper hand. This business is a high-margin business and payments banks are allowed high leverage. While they will have to pay high rates on savings deposits initially, asset side is positive. Also higher government bonds is a positive. This business has high ROEs (return on equities) and companies able to acquire a large customer base will do well. Others will face the challenge of high customer acquisition costs.”

These payments banks are being set up to further the cause of financial inclusion. These banks can accept deposits but are not allowed to lend or issue credit cards.

The central bank had expressed its displeasure over players surrendering their licences. Reserve Bank of India Deputy Governor S S Mundra had said a lot of work had gone in for selecting the candidates from the regulator’s end and it was disappointing if their plans don’t materialise.