India's largest corporate house, Reliance Industries, has managed to rope in the country's largest lender, State Bank of India, as its minority partner to head the list of applicants seeking a licence to set up a specialized bank. Over 70 applicants including Aditya Birla Group, Vodafone and Airtel have shown interest in setting up either a `payments bank' or a `small finance bank'. Monday was the last date for applications.
The specialized banks are expected to change the banking landscape by promoting digital payments, both for money transfers and for payments. Although digital payment products are available, new entrants are expected to speed up adoption by making these available to low-value customers on the mobile platform.Other applicants range from Future Group and Idea (along with AV Birla Nuvo) to microfinance companies such as SKS and technology compani es such as Vakarangee Software and Fino Paytech.
Gold loan companies such as Muthoot and new generation digital payment companies PayTm, Citrus Payments, MobiKwik and early pre-paid issuers Oxigen and ItzCash are also aiming to turn themselves into banks. Specialized `payment banks' and `small finance banks' are the brainchild of RBI governor Raghuram Rajan.
The payment banks will open savings accounts like regular banks. However, they will be extremely low cost in their operations with a minimum branch presence. Their account opening process is expected to be similar to low-value pre-paid phone connections. They will not provide loans or investment schemes and all their deposits must be invested in government securities.Being high on technology , they are expected to reduce the public's dependence on cash as they promote person-to-person electronic remittances. Similarly , small finance banks will be driven by new technology and at least half their advances will have to constitute loans and advances of up to Rs.25 lakh.
Some public sector giants such as IndiaPost and BSNL had earlier shown interest in investing in a payment bank. However, there was no confirmation from RBI on the list of applicants.
The RIL-SBI joint venture will be promoted by RIL with the bank picking up a 30% stake. A joint statement said, “The payments bank will leverage SBI's nationwide distribution network and risk management capabilities along with the substantial investments made by RIL in its retail and telecom businesses. It will deploy state-of-the art technology, build scalable infrastructure and create extensive branch and business correspondent network in order to provide last-mile access and intuitive user experience to all sections of society.“
The central bank has not indicated how many bank licences it is willing to issue. Central bankers only say that they expect the number of successful applicants to be definitely more than the two licences that it issued for universal banking last year. Besides SBI, other banks too have entered into partnerships. Kotak Bank will pick up one fifth of a stake in Airtel MCommerce which al ready has built a brand in mobile money . RBL (erstwhile Ratnakar Bank) has said that it would partner Oxigen and pick up a stake ranging from 15-30%. Sources said that ICICI Bank may pick up stake if Fino Paytech--a banking technology company promoted by ICICI--gets a licence.
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