Cholamandalam drops payments bank plans

To surrender RBI's in-principle approval

Cholamandalam Investment and Finance Company has decided to abandon its plans to set up a payments bank.

A company spokesperson said: “It is a decision by the board considering competition and other factors including long gestation period (for payments banks to become profitable).”

The Murugappa Group company was one of the 11 firms that got in-principle approval from the Reserve Bank of India (RBI) to set up payments banks in the country. The others are: Reliance-SBI combine; Aditya Birla Nuvo (Idea Cellular); Airtel; Vodafone; Department of Posts; FINO PayTech; Tech Mahindra; National Securities Depository Ltd; Paytm (Vijay Shekhar Sharma); and Dilip Shantilal Shanghvi.

RBI had given licence to these firms on August 19, 2015. The objective of setting up of payments banks was to further financial inclusion. This was to be achieved by providing small savings accounts and payments/remittance services to migrant labour workforce, low-income households, small businesses, etc. Cholamandalam was to use its subsidiary Cholamandalam Distribution Services Limited (CDSL) to establish the payments bank. Now that it has decided not to pursue it, the company will not proceed with the capital infusion of Rs 75 crore in CDSL. It will intimate RBI of its decision in this regard.

According to Ashvin Parekh, managing partner of Ashvin Parekh Advisory Services LLP, only those with strong backing of telecom bandwidth and technology would be able to sustain and survive in the payments bank space. There would be consolidation in the space over the next five years with only about five players staying in the field, he added.

Expressing surprise at the decision to pull out, a member of the RBI panel that picked players said a lot of thought had gone into the assessment of players. The prospective players had projected loss at least for five years.

A panel headed by Nachiket Mor, director of the central board of RBI, had screened applications for financial soundness — that is five-year track record of the promoter and the key entities of the promoter group.