Three out of eleven Indian payments banks pull out of market

Tech Mahindra, which received in-principle approval to start a payments bank in August 2016, has dropped its plans, dealstreetasia.com reports. In May 2016, a consortium of Sun Pharmaceutical Industries also abandoned its plan to set up a payments bank. Earlier in March 2016, Cholamandalam Investment and Finance backed out as well.

There are still eight potential payments banking entities: Aditya Birla Nuvo; Airtel M Commerce Services, a part of Bharti Airtel; department of posts; Fino PayTech; National Securities Depository; Reliance Industries; Paytm founder Vijay Shekhar Sharma; and Vodafone m-pesa, a unit of Vodafone India.

Payments banks can collect deposits and offer different payment solutions to customers but are not allowed to lend. RBI has also asked them to invest 75% of their deposits in government securities, limiting their ability to earn. And they will need to offer at least 4%, the current savings rate that banks offer, to attract customers. That leaves the banks with an interest spread of not more than 3-4% taking the current benchmark 10-year government bond yield of 7.46%.

However, Paytm intends to launch a payments bank by August 2016, Airtel Payments Bank will start services in the Q2 of FY 2016, Kotak Mahindra Bank holds 19.9% in the payments bank, and India Post’s payments bank will start functioning from March 2017. Fino PayTech also plans to go ahead with the launch of a payments bank.