Payments Banks by RIL, Airtel, Vodafone soon

RBI issues 11 bank licences; sheds its decades-long reluctance allowing corporates to enter the banking space .

Mumbai : Companies run by billionaires Mukesh Ambani and Kumar Mangalam Birla as well as telcos Bharti Airtel and Vodafone are among the 11 entities that got the Reserve Bank of India’s nod to set up non-lending payments banks as part of the financial inclusion drive.

Reliance Industries, which had previously announced partnership with State Bank of India, Airtel M Commerce Services Limited, Aditya Birla Nuvo, Vodafone m-pesa, Tech Mahindra and Department of Posts got the ‘in-principal’ approval from RBI to set up such niche banks. Sun Pharma promoter Dilip Shantilal Shanghvi and Vijay Shekhar Sharma of PayTM also got approval in their individual capacities. Besides, Cholamandalam Distribution Services, Fino PayTech, and National Securities Depository (NSDL) also got approval, out of the 41 applicants.

Payments bank licence will allow companies to collect deposits (initially up to Rs 1 lakh per individual), offer Internet banking, facilitate money transfers and sell insurance and mutual funds. Besides, they can issue ATM/debit cards, but not credit cards. As payments banks, these entities cannot undertake lending, so they would not be subject to same risks as a full service bank.

Commenting on the development, Finance Minister Arun Jaitley said such banks will ensure more money comes into the banking system and will help reach out to people in rural  areas. “Various banks are looking at increasing their rural reach which includes big banks like SBI; payments banks will help them realise this,” he added.

Just more than a year ago, the RBI had given universal banking licences to IDFC and Bandhan Financial Services, overlooking corporate bigwigs such as Aditya Birla Nuvo, Reliance Capital, L&T Finance, and Bajaj Finserv, reiterating its reluctance to allow companies to run banks.

Through repeated rounds of opening up of bank licences since early 1990s, the RBI has set norms that prevented companies from even applying for such licences. The exclusion till 2013 was through omission, which enabled the RBI to not have to take a clear policy stance on company-promoted banks by leaving them out of the fray.

The central bank has finally shown that it now does not have any inhibitions on allowing banks to be promoted by companies. However, the tough part starts now with the central bank having to ensure full compliance to its tough norms to ensure companies keep their end of the bargain and maintain distance from their banking entities.

The RBI, probably, will take comfort from the fact that payments banks cannot do lending business which contains the amount of arbitrage that a corporate can do with its other entities.

SBI, the country’s largest lender, will take as much as 30 per cent in RIL’s proposed bank while Bharti Airtel, India’s largest telecom operator, plans to give 19.9 per cent stake in the bank to Kotak Mahindra Bank Ltd. A total of 41 companies had applied for the permit but “some of the entities who did not qualify in this round, could well be successful in future rounds,” RBI said, adding that in future it plans to grant such licences ‘virtually on tap’.

Aditya Birla Nuvo Limited has tied up with Idea Cellular which will have 49 per cent stake in the joint venture. “The ‘in-principle’ approval granted will be valid for a period of 18 months, during which time the applicants have to comply with the requirements under the guidelines and fulfil the other conditions as may be stipulated by the Reserve Bank,” RBI said.

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