The concept of payments bank introduced by the RBI appears to be a non-starter. The latest to opt out is the Aditya Birla Idea Payments Bank. The company has filed an application in the Bombay High Court for voluntary liquidation and the court has passed an order. This has now been disclosed by the banking regulator RBI.
The RBI notification says the Bombay High Court has appointed Vijaykumar V Iyer, Senior Director of Deloitte Touche Tohmatsu India LLP as the official liquidator for the bank.
Lack of viability is the reason cited by the company for exiting the business.
Earlier in July, Aditya Birla Idea Payments Bank had said that it was winding up its business due to unanticipated developments that made its economic model "unviable".
With this, a total of four payment banks have shut shops including Tech Mahindra, Cholamandalam Investment and Finance Company and a consortium of Dilip Shanghvi, IDFC Bank Ltd and Telenor Financial Services.
Some of these companies like Idea and Airtel felt that they can leverage the millions of telecom subscribers they already have as their customers and convert at least some of them into account holders. Airtel had a beat a hasty retreat when it automatically converted its new subscribers into account holders even without their explicit consent. Their Aadhar cards verification submitted for the telecom connection was used by Airtel to complete the KYC for the Payments Bank account opening.
The larger issue, however, seems to be that the conditions laid down by the RBI does not make the establishment and running of payments bank viable. The main grouse is these payments banks cannot accept deposits or get into lending. They can at best be described as glorified cash counters of banks. They can open accounts and allow the account holders to deposit their moneys in it. But the maximum a person can hold in the account is Rs 100,000. These are very restrictive and for any banking operation there has to be some income stream to survive. The only way for these Payments banks to earn an income would be to park the funds being deposited by their customers in government securities or with larger banks. They have to pay the depositors interest too, as mandated. The differential income could be too meagre to justify setting up the banks.
The other way the payments bank can make money is possibly through selling insurance and some other financial products based on the customer relationships they have developed with the depositors. RBI may have to revisit the Payments Bank concept.