SBI chief is more right than Raghuram Rajan on the threat from
payment banks
Reuters
According to BusinessLine,
Rajan, who gave licences to 11 payment banks on 19 August, had this to day:
“I don’t think these 11 new banks are a threat to the existing banks.
These new banks will complement the existing system by traversing the last mile.
The reason for this is that there is nothing the universal banks cannot do that the payments banks can do.
But there are some…..things that the payments banks can’t do which the universal banks can.”
Rajan, who gave licences to 11 payment banks on 19 August, had this to day:
“I don’t think these 11 new banks are a threat to the existing banks.
These new banks will complement the existing system by traversing the last mile.
The reason for this is that there is nothing the universal banks cannot do that the payments banks can do.
But there are some…..things that the payments banks can’t do which the universal banks can.”
To which Bhattacharya
offered a counter.:
Since payment banks are allowed to raise savings deposits, “if they go for poaching rates, then many of the commercial banks could lose a portion of the deposits which are relatively lower priced.” This may affect their “ability to transmit rates and give further loans at lower rates.”
Since payment banks are allowed to raise savings deposits, “if they go for poaching rates, then many of the commercial banks could lose a portion of the deposits which are relatively lower priced.” This may affect their “ability to transmit rates and give further loans at lower rates.”
Actually, both Rajan
and Arundhati are right – and wrong.
The SBI chief is more right than Rajan.
The SBI chief is more right than Rajan.
First,
the new payment banks are already big players, and they are not entering the game only to serve the last mile beyond where banks can’t reach. Players like Airtel, the Birlas, Reliance, and PayTM (a wallet company) are not in the game only to serve inaccessible rural customers through mobile banking. They will go for a large share of the low-cost deposits in urban areas in order to make their operations in rural areas viable. So the competitive threat is real, and payment banks and universal banks will be real competitors in serving the urban customer.
the new payment banks are already big players, and they are not entering the game only to serve the last mile beyond where banks can’t reach. Players like Airtel, the Birlas, Reliance, and PayTM (a wallet company) are not in the game only to serve inaccessible rural customers through mobile banking. They will go for a large share of the low-cost deposits in urban areas in order to make their operations in rural areas viable. So the competitive threat is real, and payment banks and universal banks will be real competitors in serving the urban customer.
Second,
while Rajan is right to point out that there is nothing payment banks can do that universal banks can’t, this statement is misleading. The fact is the cost structures of universal banks will be higher than that of payment banks. The latter will opt for a minimum number of branches, and maximise customer-reach through technology, especially mobile technology. The cost structure is more skewed in the case of public sector banks, which have a huge kitty of bad loans and wide branch networks and excessive manpower. Payment banks are thus a direct threat to nationalised banks which are both short of capital and excessively burdened with costs. So Bhattacharya knows what is at stake.
while Rajan is right to point out that there is nothing payment banks can do that universal banks can’t, this statement is misleading. The fact is the cost structures of universal banks will be higher than that of payment banks. The latter will opt for a minimum number of branches, and maximise customer-reach through technology, especially mobile technology. The cost structure is more skewed in the case of public sector banks, which have a huge kitty of bad loans and wide branch networks and excessive manpower. Payment banks are thus a direct threat to nationalised banks which are both short of capital and excessively burdened with costs. So Bhattacharya knows what is at stake.
