Large banks may not be game stake in payment banks

Large commercial banks might not be so enthused to come on board to form a joint venture with those raring to form payment banks. For, the picture is hazy about the benefits from such an association. There is also a cannibalisation risk.

An advisor with Indian Banks’ Association said large banks themselves have an extensive branch network to cover under-banked regions. Plus, they would also run the risk of a payment bank in which it picks up stake eating into the original business over a period.

An executive with a large public sector bank (PSB) said the coverage of under-banked regions had improved substantially through the Prime Minister’s Jan Dhan Yojana, launched in August.

The Reserve Bank of India (RBI)’s new rules allow companies to set up payment banks and form joint ventures with a commercial bank, meaning a bank could pick up stake in such a venture.

A senior State Bank of India executive said they were yet to internally discuss the implications.

Naveen Surya, managing director of Itzcash, a payment service entity, said they were exploring if they'd like to partner with a bank or not. “For the businesses keen on applying it makes sense to partner with a bank, as it will help the player in Casa (current and savings accounts) addition if you partner with a lender. There are certain other areas such as foreign exchange remittance and treasury where banks can lend expertise.”

Entities interested in applying said mid-sized and smaller banks were more keen to partner for a payment bank. Some mid-sized banks might see a benefit to source deposits from uncovered regions by sourcing these through payment banks, a PSB executive said.

Deepak Haria, senior director, Deloitte India, said: “Players that move with a joint venture will have an advantage as those keen to apply might not have a banking background. Having a lender as a partner can help them in easing out some of the operational issues that a payment bank might have initially. For the banks, it means a wider reach.”

However, some believe a six-week window is a little tight for applications and in looking for a partner. The applications have to reach RBI by January 16, 2015.