Page 41 - Banking Finance January 2022

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with traditional banks for providing loans and selling Y Non-resident Indian deposits not permitted
investment products. Payment banks, therefore, Patient capital: Even though they are allowed to raise
complement traditional banks, rather than compete deposits, this may not be sufficient for PBs to fund their
with them. expansion. And with cutthroat competition, acquiring

Y Willingness: In payment banks, customers are willing customers will be a substantial challenge-as will
to pay for the services they don't have access to maximizing revenue per customer.
otherwise. Payment banks have a chance to reach out Y No-frill accounts: Experience from Jan DhanYojna has
to them with these products at reasonable prices shown that many such no-frill accounts have remained
dormant, thus affecting the viability of the banks
Y Interest Rates: The interest rate for a commercial bank
is between 3.5 and 6 per cent. Payment banks are
offering a really good deal in the case of interest rate Measures to improve the performance
with the highest being a 7.25%. of Payment Banks:

Y Zero balance account: Payment banks offer a zero Y Arrangement with the universal bank to automatically
balance account or a no minimum balance account transfer funds in account exceeding RS 1lakh
without any extra or hidden charge, unlike a commercial
Y Access to Aadhaar-based know your customer (KYC), as
bank who levy charges if the customer doesn't hold a
manual KYC is at least three times in terms of cost to e-
minimum balance in their account. KYC

Y RBI should allow PBs to tie up with third-party services
Challenges faced by Payment Banks
to cross sell products, as margins are small, so
(PBs):- economies of scale is very important.
Y Blanket ban: PBs face a blanket ban on any type of Y The Reserve Bank of India (RBI) has suggested
lending. Apart from the requirement of maintaining payments banks that have been granted the inprinciple
cash reserve ratio (CRR)/ statutory liquidity ratio (SLR) licence to ensure there is sharing of infrastructure
75% on their demand liabilities. among banks. So RBI should take measure to share
infrastructure among banks and Payment Banks.
Y PBs faces a cap on keeping deposits with commercial
banks at 25% of their current and time deposits. This
Payment banks will do almost all the work that is currently
reduces the business of PBs to that of fixed spread
being done by commercial banks, but the payment banks
business.
will work under certain restrictions like;
Y Liability: PBs cannot accept deposits higher than
1,00,000 lakh. Besides capital requirement is quite steep
at 15% capital to Risk Weighted Assets ratio. This led
to return on equity for PBs comes out less than 5%.

Y Regulations: the higher disclosure norms that oblige
them to share their business plan with the regulator
could prove to be somewhat tricky when the business
model of technology intensive companies itself could be
biggest source of their competitive strength.

Other regulatory burdens:-
Y A minimum of 25% physical access points in rural areas

Y Subsidiary structure like non-banking finance companies
are not permitted

BANKING FINANCE | JANUARY | 2022 | 41