The payments bank model, once considered a innovation, is looking less appealing, with three of eleven firms that received licences to start such banks abandoning their plans to do so.
On Tuesday, Tech Mahindra Ltd, which received in-principle approval to start a payments bank in August, said it is dropping its plans. Its management cited a long payback time on its investment as a reason. The company realised that intense competition would only erode already thin margins, said C.P. Gurnani, managing director and chief executive officer, Tech Mahindra, at a press conference scheduled to announce the company’s quarterly earnings. “We still feel that it is a very large unserved market,” he added. Payments banks can collect deposits and offer different payment solutions to customers but are not allowed to lend. RBI has also asked them to invest 75% of their deposits in government securities, limiting their ability to earn. And they will need to offer at least 4%, the current savings rate that banks offer, to attract customers.