Financials 19 August 2015
Sector Update | | Sector Update
Financials
RBI grants license to new niche category of banks—Payment banks
Financial inclusion to get a big push | Not a threat to incumbents
RBI has granted “in-principle” Payment Bank license to 11 applicants (out of 41).
Considering the new business model, RBI chose players from different business
streams like a) Telecom (Airtel, Vodafone), b) large conglomerates (Reliance, ABNL,
Chola, Mahindra (TechM)), c) individuals (Dillip Shanghvi and Vijay Sharma (Paytm)),
d) focused Business Correspondent (BC) and payment players like FINO and e)
Department of Post and NSDL. RBI clearly specified that licenses will remain on tap.
Some of the successful applicants have large incumbents like SBIN, MMFS and KMB
as partner.
With the limited success (partially due to high-cost model) of incumbents in
expanding reach and promoting financial inclusion, RBI floated the idea of Payment
Banks; this category of banks is unlikely to cause major disruption for existing
banks—in fact, it can be an enabler to promote financial inclusion (generate PSL) for
incumbents.
Our interaction with some of the major applicants suggests that profitability of the
business model will largely depend upon a) use of technology and cost of operations
(cost/customer is likely to be high as maximum permissible deposit size per customer
is INR0.1m), b) cost of deposits and c) generation of fees via remittances/acting as
BCs for large banks. Spreads are likely to be low as a) these banks are only allowed
to invest in G Sec (75% of NDTL) and rest in bank deposits with maturity of less than
one year and b) cost of deposits are likely to be more than 4% (minimum savings rate
in the country). The business model will largely hinder on high-volume and low-value
transactions. RBI has capped leverage to 33x in this business. Thus, despite low ROA,
ROEs can be at reasonable levels in this business.
Exhibit 1: Successful payment bank applicants and their strategic tie-ups
Payment Bank
Aditya Birla Nuvo
Airtel M Commerce
Cholamandalam Distribution Services
Department of Posts
Mr. Dilip Shanghvi
Fino PayTech
NSDL
Reliance Industries
Tech Mahindra
Mr. Vijay Sharma
Vodafone m-pesa
RIL (70%)
Tech Mahindra (50%)
SBI (30%)
Mahindra Finance (50%)
In talks with IFC
One97 - PayTm
No tie-ups announced yet
Source: MOSL, RBI, Company
Partner 1
Aditya Birla Nuvo (51%)
Airtel (80.1%)
Partner 2
Idea (49%)
Kotak (19.9%)
Comments
Open to explore tie-ups
No tie-ups announced yet
In talks with Telenor, IDFC
No tie-ups announced yet
No tie-ups announced yet
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
Vallabh Kulkarni
(Vallabh.Kulkarni@MotilalOswal.com); +91 22 3982 5430
19 August 2015
Investors are advised to refer through disclosures made at the end of the Research Report.
1
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