Payments banks bat for new model, pin hopes on lending licence amid stress

Payments banks are expecting to get the rights to offer small-ticket loans sometime soon, according to an industry source familiar with the matter. The industry has been in talks with the Reserve Bank of India (RBI) for some time in seeking lending rights.

At a time when many payments banks are struggling, allowing them to provide loans could help improve their margins, a senior executive from one such bank told Business Standard. The RBI regulations currently bar payments banks from offering loans to customers. However, these banks can offer loans to employees using their own resources, adhering to a board-approved policy that specifies the limits on such loans.

Queries emailed to the RBI and the finance ministry on a possible change to lending norms for payments banks remained unanswered until the time of going to press.                

“The entire concept of payments banks was to address the needs of merchants, including lending and other services. So, it would be a welcome move if lending was permitted. Otherwise, with the current model, payments banks may be heading towards closure,” said a former executive of a payments bank.
 

In August 2015, the RBI granted licences to 11 payments banks, of which five surrendered their licences without starting operations, leaving only six players in the segment: Airtel Payments Bank, Paytm Payments Bank, India Post Payments Bank, Fino Payments Bank, NSDL Payments Bank, and Jio Payments Bank. Recently, the RBI stopped Paytm Payments Bank from accepting deposits and adding new customers, thereby shutting its operations.
 

Payments banks are allowed to receive deposits of up to Rs 2 lakh per customer but cannot lend. The 2014-15 Budget presented by then finance minister Arun Jaitley had introduced a new framework for licensing various types of banks, including payments banks.

“In the last few years, payments banks have established a large network across the country. If lending is allowed, customers can both withdraw money and get loans from the same place. Since payments banks have a lot of customer data linked to digital activity, it will ensure sustainability and stability of this model. They can start with small loans and then move into more secure loan segments,” said another executive of a payments bank.

“Technology is one of our biggest expenses. Right now, we invest deposits in government securities and fixed deposits, resulting in very low net interest margins. Offering small loans will give us better margins and create a more sustainable model,” one of the officials quoted above said.

BATTING FOR NEW MODEL

> Payments banks can receive deposits of up to Rs 2 lakh per customer, but cannot lend

> Executives fear such banks could head towards closure with the current model

> If lending is allowed, customers can both withdraw money and get loans from the same place

> Offering small loans would improve margins and establish a more sustainable business model