Technoglitch
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Bharti Airtel Ltd, Tech Mahindra Ltd, Aditya Birla Nuvo Ltd, Cholamandalam Investment and Finance Co. Ltd and Reliance Industries Ltd shares rallied on Thursday morning as they were among the 11 entities which have received in-principle approval from the Reserve Bank of India (RBI) to start payment banks.
What will be the impact on universal banks? The impact on private sector banks will be minimal because they have already made strong investments in technology. Also some of the private sector banks like Kotak Mahindra Bank Ltd, Yes Bank Ltd and ICICI Bank Ltd have tied up with some of the companies that have got approval for setting up payment banks and hence will not be affected much. Large public sector banks have also tied up with or will very probably tie up with entities that have received payment bank approval. That is why RBI governor Raghuram Rajan, in an interaction with State Bank of India chairperson Arundhati Bhattacharya on Thursday, made light of the threat to big banks from payment banks, and said instead they could act like feeder banks and make the larger banks more competitive.
There could also be pressure on public sector banks’ deposit franchise from India Post, which has received payment bank approval. India Post’s reach, with 139,000 post offices, significantly exceeds the number of bank branches at around 44,700 in rural areas. Since payment banks are allowed to take deposits up to Rs.1 lakh, public sector banks could lose out on customers who might open savings accounts with the post office.
Moreover, mid and small public sector banks could also lose out from business correspondents (BCs). Payment banks are permitted to collect deposits through branches or BCs. FINO PayTech Ltd is one of the largest BCs to get a payment bank licence. With an established rural network, it will create strong competition for public sector banks in rural areas.
Payment banks could also start offering competitive deposit rates of as high as 6-7% to lure customers, compared with the average 4% savings deposit rates of traditional public sector banks, according to Ambit Capital Pvt. Ltd in a note dated 20 August. This could weigh on the deposit franchise of public sector banks in the long run
Besides the threat to deposits, competition for state-owned banks will intensify as payment banks, which are backed by digital platforms, adequate capital, zero legacy issues, and low-cost innovative and convenient services, will compete heavily for liabilities in rural and semi-urban areas.
How payment banks will affect traditional ones - Livemint
What will be the impact on universal banks? The impact on private sector banks will be minimal because they have already made strong investments in technology. Also some of the private sector banks like Kotak Mahindra Bank Ltd, Yes Bank Ltd and ICICI Bank Ltd have tied up with some of the companies that have got approval for setting up payment banks and hence will not be affected much. Large public sector banks have also tied up with or will very probably tie up with entities that have received payment bank approval. That is why RBI governor Raghuram Rajan, in an interaction with State Bank of India chairperson Arundhati Bhattacharya on Thursday, made light of the threat to big banks from payment banks, and said instead they could act like feeder banks and make the larger banks more competitive.
There could also be pressure on public sector banks’ deposit franchise from India Post, which has received payment bank approval. India Post’s reach, with 139,000 post offices, significantly exceeds the number of bank branches at around 44,700 in rural areas. Since payment banks are allowed to take deposits up to Rs.1 lakh, public sector banks could lose out on customers who might open savings accounts with the post office.
Moreover, mid and small public sector banks could also lose out from business correspondents (BCs). Payment banks are permitted to collect deposits through branches or BCs. FINO PayTech Ltd is one of the largest BCs to get a payment bank licence. With an established rural network, it will create strong competition for public sector banks in rural areas.
Payment banks could also start offering competitive deposit rates of as high as 6-7% to lure customers, compared with the average 4% savings deposit rates of traditional public sector banks, according to Ambit Capital Pvt. Ltd in a note dated 20 August. This could weigh on the deposit franchise of public sector banks in the long run
Besides the threat to deposits, competition for state-owned banks will intensify as payment banks, which are backed by digital platforms, adequate capital, zero legacy issues, and low-cost innovative and convenient services, will compete heavily for liabilities in rural and semi-urban areas.
How payment banks will affect traditional ones - Livemint
