A 17-month old Indian Payments bank backed by $41 billion Aditya Birla Group has shut shop

Kumar Mangalam Birla, chairman of the Aditya Birla Group,BCCL
  • Aditya Birla Idea Payments Bank becomes the fourth payments bank to close down operations.
  • The Reserve Bank of India had given the approval for setting up of payments banks in 2015.
  • Currently, Airtel Payments Bank, Fino Payments Bank and Paytm Payments Bank have the top ranking in the business.
The Aditya Birla Idea Payments Bank is shutting shop, and has asked customers to transfer their deposited money by July 26. In a notification to the BSE, Vodafone Idea said that the reason for the shutdown was “unanticipated developments in the business landscape that have made the economic model unviable.”

When the Reserve Bank of India gave its approval for setting up payments banks in 2015, as many as 11 major companies had signed up to be a part of it.

Cut to 2019, already four of them have closed down their business – Tech Mahindra, Cholamandalam Investment and Finance Company, IDFC Bank and Telenor Financial Services. Now, Aditya Birla Idea Payments Bank joins this list.

Many players have been finding it tough to navigate this business. Paytm Payments Bank had to stop its operations temporarily after an RBI audit regarding the acquisition of new customers through the KYC process. The bank re-started work after an approval from RBI.

Payments banks have shown losses for the second consecutive year. RBI report showed that for FY18 cumulative losses from payments banks stood at ₹516.5 crores.

“The losses of payments banks are attributed to high operating expenses as large capital expenditure had to be incurred in setting up initial infrastructure. It may take some time for payment banks to break even as they expand their customer base by offering their unique banking products,” RBI said in the report.

RBI governor Shaktikanta Das believes one needs to give time to payments banks to cut through the challenges.

In an interview with the Times of India, Das said, “Payments banks started functioning about two-three years ago, so it’s a new concept, it’s a new model. We have a regulatory framework for that and let the system evolve. At the moment, there is no proposal to change the payments banks model, but we will study it and see how they are functioning. There are payments banks which are doing well.”

Meanwhile, Airtel Payments Bank, which recently got the numero uno payments bank tag from the Ministry of Electronics and Information Technology (MeitY), got fresh capital of ₹325 crores from its parent companies – Bharti Airtel and Bharti Enterprises. Following Airtel in the ranking list are Fino Payments Bank and Paytm Payments Bank.

Payments banks are barred from lending and can accept deposits of upto ₹1 lakh. According to reports, the RBI had said that payment banks saw a total deposits of ₹940 crore until December 2018.
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