Active Stocks
Tue Mar 19 2024 11:31:02
  1. Tata Consultancy Services share price
  2. 4,023.45 -2.93%
  1. Tata Steel share price
  2. 148.40 -0.80%
  1. Bharti Airtel share price
  2. 1,232.50 0.61%
  1. Power Grid Corporation Of India share price
  2. 261.40 -1.36%
  1. HDFC Bank share price
  2. 1,449.45 0.22%
Business News/ Companies / News/  Bharti Airtel unit eyes payments bank licence
BackBack

Bharti Airtel unit eyes payments bank licence

As part of the arrangement, Kotak Mahindra Bank will buy a 19.9% stake in Airtel M Commerce Services

On Thursday, shares of Kotak Mahindra Bank lost 1.59% to `1,330.05, while shares of Bharti Airtel rose 0.37% to `375.15. Photo: MintPremium
On Thursday, shares of Kotak Mahindra Bank lost 1.59% to `1,330.05, while shares of Bharti Airtel rose 0.37% to `375.15. Photo: Mint

Mumbai: Bharti Airtel Ltd will apply for a so-called payments bank licence, potentially allowing India’s largest mobile phone operator to open small savings accounts and accept deposits of as much as 1 lakh per person, in partnership with Kotak Mahindra Bank Ltd.

As part of the arrangement between the two companies, Kotak Mahindra Bank will buy a 19.9% stake in Airtel M Commerce Services Ltd (AMSL), a Bharti unit, subject to the latter getting the payments bank licence from the Reserve Bank of India (RBI) and clearing other regulatory requirements, Bharti Airtel and Kotak Mahindra said in separate statements on Thursday.

RBI has introduced the concept of payments banks to deliver financial services to unbanked areas of the country. Telcos, supermarkets, and even companies that run electronic wallets (or other prepaid instruments) can open such banks in the country, according to the central bank. Telecom companies such as Bharti Airtel are among the best suited to start such banks because of their large customer base and wide distribution network.

The minimum paid-up equity capital for these banks will be 100 crore, while the promoter contribution has been set at a minimum of 40% at the start.

“We welcome the Reserve Bank of India’s initiative on Payments Bank," Gopal Vittal, managing director and chief executive officer (India and South Asia), Bharti Airtel, said in a statement. “The RBI’s vision for differentiated banks represents a significant step in furthering India’s financial inclusion agenda. The RBI guidelines provide an exciting and challenging opportunity for an entity like us to contribute in a meaningful manner to drive financial inclusion."

Airtel M Commerce offers mobile money services under the brand name Airtel Money. It is seeking to convert its existing prepaid payment instrument licence into a payments bank licence, according to Bharti.

Vittal said Kotak Mahindra’s banking expertise and Bharti Airtel’s strength in telecom, with more than 215 million subscribers, would help deliver financial services to millions of unbanked citizens across Indians.

“Payment banks have the potential to leapfrog India’s financial inclusion agenda. Basic but critical services such as small savings accounts, remittances, etc., will bring a large number of low-income households and small businesses under the formal banking network," said Dipak Gupta, joint managing director, Kotak Mahindra Bank.

“This is a partnership and an opportunity to participate in an inclusive marketplace. Payment banks can reach a segment that is unbanked and is difficult for commercial banks to reach directly."

The initial paid-up capital requirement being 100 crore, Kotak Mahindra will invest proportionate to the stake it is taking if approvals come through, he added.

Airtel is the first telecom company to announce its intention to seek a payment bank licence and tie up with a commercial bank to do so.

“For players in the retail or telecom business, the payment bank becomes an addendum to their core business. So the kind of pricing that they bring in would be important for the banks to watch," ICICI Bank Ltd managing director Chanda Kochhar said in a panel discussion on the banking landscape organized by Mint on Thursday.

Payments banks will provide basic savings, deposit, payment, and remittance services—but not loans—to people who currently do not have a bank account, including millions of migrant workers. Fifty per cent of Indians don’t have bank accounts, according to various estimates.

“Telecom companies coming in to set up payment banks is good news and only when we have more players will RBI’s aim of having a payment point within 15 minutes’ walking distance become a reality," said Vikram Akula, founder and former chairperson of SKS Microfinance Ltd, India’s only listed microlender.

“Today in rural India virtually nothing exists and if we have a number of players providing a payment network, especially with existing footprint, then financial services providers can leverage that network," added Akula, who is now chairman at Vaya Finserv Pvt. Ltd.

To be sure, there are some grey areas that will need to be cleared up.

“Conceptually a great idea," Vijay Mahajan, chairman of BASIX Group, said about the entry of Bharti Airtel. “There is no doubt in my mind that telcos will have a significant role in the payments bank space. But if you read the regulation, there is a clear line which says that the existing infrastructure of telcos will not be allowed for payment banks. Did they mean the retail outlets of these companies, or something else? Because that would mean taking away their biggest asset."

“Telcos are driven by their Arpus (average revenue per user) and they always want to enhance the Arpus. Through that they may end up by cutting rates too soon, which may make the whole space unviable. The same thing happened in the airline industry where there is someone who thinks that they can do it for cheaper."

The announcements by Bharti and Kotak Mahindra were made after market hours.

Shares of Bharti Airtel rose 0.37% to 375.15 and shares of Kotak Mahindra Bank fell 1.59% to 1,330.05 on a day the BSE’s benchmark Sensex gained 0.41% to 29,681.77 points.

Beryl Menezes contributed to this story.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Published: 29 Jan 2015, 06:07 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App

Chat with MintGenie