Summary of Developments around Payments Banks in India

The Reserve Bank of India (RBI), India’s central bank, is now propagating differentiated banking licenses, reflecting a new line of thinking. RBI had previously released guidelines for licensing and setting up of ‘Payments Banks’ in India. This has been done with the aim of reformatting India’s financial inclusion space. Payments Banks would help cover the unbanked and underbanked areas and increase banking penetration in the country. Post the initiation by the RBI, a number of initiatives are coming up in the Indian market involving stakeholders across multiple sectors. Here are some recent noteworthy developments:

The Prime Minister Backs Cashless Banking

Narendra Modi, the prime minister of India, is of the view that cashless banking transactions can be the best solution to address the problems of black money, as reported by The Economic Times. Black money has been a major political issue in India in the recent past. The PM wants banks to look into ways of discouraging huge amounts of money being kept in gold. The Indian consumers usually have the habit of diverting their savings to gold investments. Supporting the PM’s view, Payments banks can emerge as potential candidates to address such challenges.

Traditional Banks to Partner With Payments Banks

The RBI has already released guidelines which will allow aspirants to form joint ventures with private lenders. One of the major private sector lenders in India, Axis Bank, is looking for aspirants in the upcoming Payments Bank space for a potential partnership. Axis Bank already has its network spanned across 2505 branches and 13146 ATMs (source: LIVEMINT). Besides Axis, other banks such as Ratnakar, ICICI, IDBI, Kotak Mahindra and State Bank of India (SBI) are also seeking such partnerships in the near future. Banks entering into tie-ups with payments banks will help them expand their reach.

Telecom players to Go after Payments Banks as Well

Bharti Airtel, one of the leading mobile phone operators in India, is reportedly in talks with banks for equity partnership in a payments bank. Airtel, being an influencer in the Indian market, will certainly make other telecom operators follow suit. A payments bank permit could give a boost to telcos’ mobile money transactions. Airtel already has a mobile money services setup in African markets such as Kenya. In India, Airtel has a Business Correspondent joint venture with SBI. Axis Bank offers banking services via Airtel mCommerce Services.