Banks Line Up To Invest In Govt’s Ecommerce Project! SBI, Kotak, HDFC, Axis Pick Stakes In ONDC

Different arms of the government have come forward to back the recently announced Open Network for Digital Commerce (ONDC). Country’s largest bank, State Bank of India (SBI), has picked up a 7.84% stake in the newly announced initiative for INR 10 Cr. 

With this, SBI has become the second public sector bank in the country to acquire a stake in the ONDC. Earlier in November last year, PNB had proposed to invest INR 25 Cr or acquire 9.5% equity, whichever would be lower.

This comes on the heels of Kotak Mahindra Bank, Axis Bank and HDFC Bank announcing that they had also acquired 7.84% stake each in the digital infrastructure framework entity. Kotak Mahindra, HDFC and Axis picked up a stake in the ONDC for an amount of INR 10 Cr each. 

In a regulatory filing, Kotak said that it had subscribed to 10 Lakh equity shares of ONDC for a consideration of INR 10 Cr, translating into an equity shareholding of 7.84%. In a separate filing, Axis Bank announced a similar update having been allotted 10 Lakh equity shares worth INR 10 Cr.

According to SBI’s exchange filing, the Indian public bank has stated that the bank and its subsidiaries, in the ordinary course of business, may have business dealings with ONDC at an arm’s length.

It also mentioned that the equity ownership was ‘aimed at providing an open public digital infrastructure to develop and transform the Indian digital commerce ecosystem for both goods and services.’

This announcement comes parallel to the Ministry of Electronics & IT (MeitY) announcement that its digital venture arm Common Services Centres (CSC) has also invested an undisclosed amount in ONDC.

According to media reports, CSC CEO Dinesh Tyagi said, “It is for the first time that CSC has invested in an initiative like this. ONDC will democratise digital commerce by moving to an open network. With the CSC Grameen eStore being integrated with ONDC, companies can look towards reaching out to the rural market through the network of over 3 lakh Grameen eStores across the country.”

He further added that the partnership would also generate employment opportunities for rural youth by enabling last mile logistics networks.

ONDC & Its Ripples On Indian Retail Segment

According to a 2021 report by Bain & Company, India is home to the world’s fourth largest retail market in the world, pegged at around $810 Bn. An Inc42 report also estimates the addressable ecommerce market in the country to reach the $200 Bn mark by 2026.

Considering the behemoth ecommerce opportunity the Piyush Goyal-led Department for Promotion of Industry and Internal Trade (DPIIT) formed ONDC, an open protocol-based digital commerce platform. Formed on December 31, 2021, ONDC has been incorporated as a private sector non-profit company.

The platform will enable buyers and sellers across a wide variety of segments from mobility to grocery, from delivery to hotel booking to list on the platform and transact with a gamut of digital-savvy consumers.  

ONDC will empower merchants and consumers by breaking silos to form a single network to drive innovation and scale, transforming all businesses from retail goods, food to mobility, the Commerce Ministry, said in a PIB release. 

According to a report, the digital initiative is likely to start operations by August 2022, with the government planning to launch a pilot later next month. 

The initiative also aims to create new opportunities for small and medium-scale enterprises to go online and sell their products at a better price.

Is ONDC Indian Govt’s Substitute For Foreign Etailers?

The move is targeted at creating an open-network platform that could compete with the likes of behemoths like Amazon and Flipkart. It also aims to ensure a level playing field for small retailers and to smoothen ease doing business online.

The ODNC is a likely build-up on the Ministry of Consumer Affairs’s draft ecommerce policy announced in July last year. The move was met with vociferous criticism especially from etailers like Amazon and Flipkart citing regulatory overreach. 

The draft rules attempted to crack down on etailers over flash sales, keep in check the business activities of platform’s own private labels and turn up the heat on ecommerce players allegedly covertly working with vendors. These rules were later amended in December 2021 over apprehensions of it scaring away foreign investors.

Since then, many trade bodies have repeatedly pointed out the same issue saying the balance was heavily tilted in favour of ecommerce players. In many instances, trade bodies like CAIT have even called for a ban on Amazon citing non-competitive business practices by the US-based ecommerce giant.

This also comes amidst a protracted three-way battle between Amazon, Future Retail and Reliance, where the US-based ecommerce giant and Mukesh Ambani’s conglomerate are fighting for a piece of the $810 Bn retail economy of the country.