Seventeen months after its launch, Aditya Birla Payments Bank is winding up. In a regulatory filing, Vodafone Idea informed the stock exchanges that the Board of Directors of its associate company ABIPBL has -- subject to receipt of requisite regulatory consents and approvals -- approved the voluntary winding up.
“This decision has been taken due to unanticipated developments in the business landscape that have made the economic model unviable,” the company said in the filing.
Launched in February last year, Aditya Birla Payments Bank is a joint venture between Aditya Birla Nuvo Ltd (51% stake) and Ideal Cellular (49% stake). It is the fourth payments bank to begin operations after RBI granted licenses to 11 entities in 2015. According to an ET Prime report, October 18 would be its last working day.
In a note to its customers, the payment bank said that it will be restricting any further credits (add money) to their account from July 26, 2019 and that full and complete arrangements have been made for return of all deposits.
According to a CNBC TV18 report, Aditya Birla payments Bank holds total customer deposits of Rs 20 crore.
The development was first reported by ET Prime, where it says that there were several issues with the business model of a payments bank, which Aditya Birla was facing. First was the fact that payment banks can only accept deposits of up to Rs 1 lakh per customer and are not allowed to lend. They also, as a result, do not earn interest income from loans and earn very little from desposits, thus making them mainly dependent on charges such as processing, transaction fees and commissions earned through cross-selling products.
Making matters worse, they are required to adhere to stringent KYC norms, while fighting off competition from other large players such as Paytm Payments Bank, India Post Payments bank.
This is probably why among the 11 entities that received the license from RBI, Tech Mahindra, Cholamandalam Finance and the Dilip Sanghvi-IDFC Bank-Telenor joint venture surrendered their licenses.
Not surprising then that payment banks have been finding it tough to rake in profits. BloombergQuint quotes RBI data from ‘Trends and Progress In Banking’ report released in December 2018 to state that payments banks reported collective losses of Rs 516.5 crore in 2017-18.
The reporter of the ET Prime report also tweeted that about 160 employees have already left Aditya Birla Payments bank and some have been placed within the Aditya Birla Group. There could be severance package which will be announced later.
The reporter also tweeted that Vodafone M-Pesa has also shut down operations as of July 15.