Airtel Money-Kotak Mahindra Bank JV Gets First Payments Bank License from RBI; Cholamandalam Quits

The race for launching India’s first payments bank has been won by a joint venture between Airtel and Kotak Mahindra Bank. Reserve Bank of India (RBI) allocated the license to Bharti Airtel-Kotak JV yesterday; and this means that Paytm would be the 2nd such bank, if they receive the license.

And, this new entity has become India’s 4th largest private bank (by assets), thereby paving the path for creating more such small payments banks for greater financial inclusion of Indians.

Bharti Airtel informed Bombay Stock Exchange: “Airtel M Commerce Services Limited (AMSL), a subsidiary of Bharti Airtel Limited has been granted payments bank license from Reserve Bank of India on April 11, 2016,”

Payments Bank would offer some basic services such as small savings, deposit (under Rs 1 lakh), payment and remittance services.

Airtel Money Would Be India’s First Payments Bank

The license has been given to AMSL, which launched Airtel Money in 2011 and became India’s first mobile based pre-paid payment instrument service. Earlier this year, Kotak Mahindra bank bought 19.9% stake in Airtel Money by paying Rs 98.4 crore and thus, the foundation of the JV was laid.

This JV between Airtel and Kotak Mahindra Bank applied for opening payments bank and RBI had approved their application, along with 10 other entities which are: Aditya Birla Nuvo Limited, Cholamandalam Distribution Services Limited, Department of Posts, Fino PayTech Limited, National Securities Depository Limited, Reliance Industries Limited, Shri Dilip Shantilal Shanghvi, Shri Vijay Shekhar Sharma (Paytm), Tech Mahindra Limited, and Vodafone m-pesa Limited.

This approval was ‘in-principle’ and subjected to further approvals.

Out of these 11 entities, Airtel-Kotak JV became the first one to get final approval.

Airtel has 34.5 crore customers all over India, and command an impressive 31.4% share in the telecom market. Most probably, this was the reason which helped them to acquire the license way ahead than other players in this race.

Cholamandalam Quits The Race

In a related development, Cholamandalam Investment and Finance Company from Murugappa Group has decided to quit the race to become a payments bank. They were provided an ‘in-principle’ approval last year, but due to strategical reasons, they will not pursue the matter any more.

In a statement, they said, “It is a decision by the board considering competition and other factors including long gestation period (for payments banks to become profitable).”

As per financial experts, only those companies which have a strong telecom bandwidth and capacity to absorb losses for atleast 5-7 years would be able to survive this tough niche.

Some analysts are also predicting that out of 11, only 4-5 major players will survive. And, the count has already fallen to 10 with the exit of Cholamandalam.

All eyes are now set on Paytm and India Post, both of which have some solid, long term plans related with Payments Bank space in the country.

Here are the guidelines for payments and small bank, as notified by RBI.