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Payments bank not viable for us, says Murugappa Group

Murugappa Group surrendered its in-principal approval for payment banks two months back

A Vellayan
T E NarasimhanGireesh Babu Chennai
Last Updated : Jun 08 2016 | 1:10 AM IST
The Rs 30,000-crore Murugappa Group, which had surrendered the payments bank licence, said the decision was taken because the basic concept of the payment banks has changed and they do not make business sense for the company.

Cholamandalam Investment and Finance Company, the non-banking financial company  (NBFC) arm of Murugappa, had decided to abandon its plans to set up a payments bank two months ago. A Vellayan, executive chairman of the company said it does not make business sense for companies like Murugappa since transaction cost will be hardly anything.

“I reckon that companies, which are going into this, will be only telecom companies or banks that want to retain their customers or have a large customer base. What happened with the platform is that the base has changed very fast. We would have to burn a huge amount of capital even to stay in the business. Probably only four to five players will come into the market and they are either telecom companies or bankers,” said Vellayan.

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He added the value proportion the Group can offer should be as attractive as the competitor and if it is not then it cannot play.

N Srinivasan, director (finance), Murugappa Group, added the entire base was different from the time it applied and got in-principle approval.

“We found that it is no longer like a financial inclusion, it is like playing the e-commerce market. You require huge capital and long gestation period,” he said.

The company was expecting to invest about Rs 100 crore in the business and make a sustainable business in two-three years, whereas it found later that it has to pump in more money to meet the losses for at least six-seven years.

The Murugappa Group company was one of the 11 firms that got in-principle approval from the Reserve Bank of India (RBI) to set up payments banks in the country.

The others were — Reliance-SBI combine; Aditya Birla Nuvo (Idea Cellular); Airtel; Vodafone; Department of Posts; FINO PayTech; Tech Mahindra; National Securities Depository Ltd; Paytm (Vijay Shekhar Sharma); and Dilip Shantilal Shanghvi.

RBI had given licence to these firms on August 19, 2015. The objective of setting up of payments banks was to further financial inclusion. This was to be achieved by providing small savings accounts and payments/remittance services to migrant labour workforce, low-income households, small businesses, etc. Cholamandalam was to use its subsidiary Cholamandalam Distribution Services Limited (CDSL) to establish the payments bank. Now that it has decided not to pursue it, the company will not proceed with the capital infusion of Rs 75 crore in CDSL. It will intimate RBI of its decision in this regard.

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First Published: Jun 08 2016 | 12:12 AM IST

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