Payments Banks Continue Their Loss Run, RBI Hopes For Break Even

The continued losses of payments banks due to their high expenses have become a cause of concern, the Reserve Bank of India (RBI) said. In a recently released report by the RBI entitled ‘Trend And Progress Of Banking In India 2017-18’, the central bank noted that the consolidated balance sheet of payments banks showed net losses during 2016-17 and 2017-18.

Even operating profit of payments banks remained negative, although net interest income improved. “The losses of payments banks are attributed to high operating expenses as large capital expenditures had to be incurred in setting up initial infrastructure,” the report added.

At present, six payments banks are operational in India: Aditya Birla Payments Bank, Airtel Payments Bank, India Post Payments Bank, Fino Payments Bank, Jio Payments Bank, and Paytm Payments Bank.

Earlier, in 2018, RBI also took strict action against Paytm, Airtel and Fino Payments Banks’ and put a ban for a certain period wherein they could not onboard new consumers. This was majorly due to the low amount of funds deposited by them.

A Right to Information (RTI) query showed that payments banks in India deposited a total sum of $74.5 Mn (INR 540 Cr) as on May 2018, of which Airtel Payments Bank deposited the highest — $42.3 Mn (INR 306 .74 Cr).

The RTI further revealed that Paytm Payments Bank deposited $26.7 Mn (INR 193.68 Cr), while Fino Payments Bank and India Post Payments Bank (IPPB) deposited $5 Mn (INR 37 Cr) and $191K (INR 1.39 Cr), respectively, as on May 2018.

Payments Banks: Progress And Trends

In its new report, RBI has said that at the end of March 2018, other liabilities (such as unspent balances in PPIs) and provisions of the five Payments Banks in operation accounted for more than half of their balance sheets as compared to the previous year when for two operational Payments Banks, total capital and reserves formed the major share of the liabilities.

The report does not explicitly mention the names of any Payments Banks.

Here are the trends the RBI observed:

• The share of deposits increased from 5.7% to 9% between FY17 and FY18
• The operating loss for FY17 and FY18 was $34.5 Mn (INR 240.7 Cr) and $74.84 Mn (INR 522.1 Cr) respectively
• The net loss was $34.72 Mn (INR 242.2 Cr) and $74 Mn (INR 516.5 Cr) for FY 17 and FY18 respectively
• The net interest income improved from $21.65 M (INR 151.1 Cr) in FY17 to $44 Mn (INR 30.7 Cr) in FY18
• The total liabilities/assets rose to $701.1 Mn (INR 4,891.6 Cr) in FY18 from $171 Mn (INR 1,193.9 Cr) in FY17
• About 81% of the business the payments bank made was on account of inward and outward transactions through mobile and e-wallets
• During H1 2018-19, payments banks were making losses and it may well continue for many quarters
• The performance of payments banks has improved in terms of various performance metrics such as NIM and the cost to income ratio

“It may take some time for payments banks to break even as they expand their customer base by offering their unique banking products,” the RBI said in the report.

In late 2013, a committee on Comprehensive Financial Services for Small Businesses and Low-Income Households under RBI recommended the formation of a new category of a bank called Payments Bank. Later in July 2014, the RBI released the draft guidelines for Payment Banks, seeking comments for interested entities and the general public. The same year in November, RBI released the final guidelines for Payment Banks.

A Payments Bank can accept deposits of up to INR 1 lakh ($1,433), offer remittance services, mobile payments or transfers or purchases and other banking services like ATM/debit cards, net banking and third party fund transfers but cannot advance loans or issue credit cards.

The RBI said that the primary objective of establishing Payments Banks is to harness technology so as to increase financial inclusion by opening small savings accounts and providing payments/ remittance services to migrant labourers, small businesses, low-income households and other entities in the unorganised sector, by using the digital medium.

In February 2015, 41 entities had applied for Payments Banks licenses, however, RBI gave “in-principle” licences to eleven entities to launch Payments Banks. This in-principle license was valid for 18 months, and since then, three selected entities— Cholamandalam Distribution Services, Sun Pharmaceuticals and Tech Mahindra have surrendered their licenses.

The plans for Vodafone m-pesa payments bank also became dicey when Vodafone got an indirect stake in Fino payments bank. Also, National Securities Depository Limited (NSDL) is still waiting for RBI’s final approval for launching its services.

In all, Payments Banks, which were launched with an ambition to role out a path towards a truly digital India are yet to take off. The RBI numbers clearly signify that there’s still a long road ahead for the existing payments banks. But hopes are still high. Jio Payments Bank will be soon out of beta testing phase, and India Post Payments Bank with its ambitious target of 650 branches across the country, is ready to pick up the pace.

With RBI withdrawing its ban on Paytm Payments Bank after six months, it has set a target of reaching 100 Mn by the end of 2019. It had also set an aim to invest $500 Mn (INR 3,505 Cr) in KYC operations in order to reach 500 Mn bank accounts by 2020.

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