Voda's payments bank becomes first to shut shop

The Vodafone promoted Aditya Bira Idea Payments Bank started operations in February 2018.

It will be the first payments bank to close down after this set of niche banks were started by former RBI governor Raghuram Rajan in 2015.

Aditya Birla Idea Payments Bank (ABIPBL) has decided to close down only 17 months into operations. The bank said the closure was prompted by “unanticipated developments in the business landscape that have made the economic model unviable”.

A payments bank can take deposits of up to Rs 1 lakh but cannot give loans or issue credit cards. They can issue debit cards and facilitate mobile banking.

Vodafone Idea, the promoter of ABIPBL, said in a notification to the exchanges late on Friday that the board of the bank approved winding up the business, subject to approval from the Reserve Bank of India (RBI). 

ABIPBL started operations in February 2018. It will be the first payments bank to close down after this set of niche banks were started by former RBI governor Raghuram Rajan in 2015.

In a message to customers, ABIPBL said it would restrict further credit to the accounts from July 26.

“We regret to inform you that we intend to discontinue our banking services,” the message said. “However, we would like to assure you that the bank has made full and complete arrangements for return of your deposits. We request you to transfer the balance through online/mobile banking/nearest banking point.”

The RBI had originally awarded 11 payments bank licences in February 2015, but four licences were returned. Of the remaining seven licences, one each was given to Vodafone and the Aditya Birla group, which leveraged its Idea Cellular network to float a payments bank.

At the time of the merger between Vodafone and Idea, the management had said it did not make sense to keep two licences, and they would eventually return one. 

Although payments banks do not release financial data for public, a right to information query filed by BloombergQuint revealed that ABIPBL had mobilised deposits of only about Rs 5.62 crore as of December 2018.

The company’s notification stating an unviable economic model also holds true in general. 

Earlier payments banks were seen as technology pioneers that would bring a revolution in financial inclusion and mobile payments. But, the scene is crowded now with all kinds of financial technology companies offering their products.

Banks are also offering their own mobile banking products that can be used to make payments easily.  This has made the operating environment for payments banks challenging. 

The report on Trend and Progress of Banking, released by the RBI in December, showed that payments banks have been making losses consistently.

“The consolidated balance sheet of payments banks showed net losses during 2016-17 and 2017-18. Even operating profit of payments banks remained negative, although net interest income improved,” the report said. 

“The losses of payments banks are attributed to high operating expenses as large capital expenditures had to be incurred in setting up initial infrastructure. It may take some time for payments banks to break even as they expand their customer base by offering their unique banking products.”

However, not all are experiencing losses. Paytm Payments Bank said it broke even in the second year, posting a profit of Rs 19 crore for 2018-19. 

“At the same time, the performance of payments banks has improved in terms of various performance metrics such as NIM (net interest margin) and the cost to income ratio. However, their losses in RoA (return on assets), RoE (return on equities) and profit margins has continued,” the Trend and Progress report said.