 "The niche we will own the most is financial inclusion: Vellayan Subbaiah")
The Reserve Bank of India (RBI) on Wednesday granted in-principle nod to 11 entities to operate payments banks. One among them was Cholamandalam Distribution Services Ltd, a wholly owned subsidiary of the Rs 26,900-crore Murugappa Group's non-banking finance company (NBFC) arm Cholamandalam Investment and Finance. Vellayan Subbiah, managing director, Cholamandalam Investment and Finance, in an interview to T E Narasimhan, talks about the strategies and the way forward for the new payments bank. Edited excerpts:.
What is your view on payments banking services as a whole?
This is a transformative step in fulfilling the financial inclusion goal of the government and RBI. At present, almost 80 per cent of the transactions are cash-based, with physical cash. The theory is as you increase the velocity of cash, it allows the economy to grow at a faster pace.
There is a fair amount of complementary between the two models in itself. We are looking at something that plays into that complementary and might even look at getting a partner from that perspective provided that the RBI is open to us pursuing such a partnership. That is something we will start a conversation around.
What will be Chola's USP and what kind of synergy do you see from other group companies?
I will not be able to share our exact USP now. We will take a solution to the market, which will use both technology and our physical footprint. This will help in digitising cash transactions and providing additional services to existing and new customers of the payments bank. Chola, currently, has over 534 branches spread across the country and a captive base of over 750,000 customers, which is an immediate opportunity that can be tapped into.
The larger Murugappa Group eco-system offers an even larger base of rural customers and this is a definite plus for us. One advantage is we can start with our ecosystem. We have over 0.8 million truck drivers, and from Coromandel, there are a lot of farmers we can go and talk to.
There are several things within our own ecosystem we can talk to. Beyond that, if you look at combinations that if you can strike a partnership or in other ways.
Partnerships also help to get a lot of customers in. There are a fare amount of other opportunities as well, we can go after. But it is still early days. We are going to formulate a strategy around on how we should go after it.
A lot of our focus will be on financial inclusion. A lot of people might go after more affluent customer base. But we see opportunity at financial inclusion. The niche we will own the most is financial inclusion both urban and rural. It will be the payments bank that financially includes people both urban and rural.
Does Chola have technological capability?
We will develop the technology, which will be the best in class and technologies are also available in this space in the market. We can also partner with the technology providers. We can both develop and partner for technology.
As per norms, the new payments bank should have Rs 100 crore. Does Chola have enough capital? Also have you found the team, will it be internal? When will the operations start?
Cholamandalam Distribution Services has around Rs 40 crore, the balance will be pumped in (by Cholamandalam Investment and Finance). We have to build a team, will take some people from inside and recruit from outside too. To finalise the leadership for the new payments bank, we need to have a discussion with RBI.
They have specific requirements on what they would want and all our candidates will run with RBI to make sure they are comfortable with them. I can't give a timeline, but we will meet the deadline (18 months set by RBI).
Among the 11 firms, how do you see Chola? What are the strengths you carry?
Everybody is going to take different approach to this. Aditya Birla, Airtel, Reliance (Jio) and Vodafone are all in the telecom space already.
You have four different types of competitors here. One is the whole telecom-based play, which is the kind of well-known play. Then there is a whole second category, which is going to be fully digital in nature, which is the Paytm category.
The company, which is going to be closer to our category, is Tech Mahindra. The Tech Mahindra will basically partner with Mahindra and Mahindra Financial Services. Both of us then have a large physical distribution network across the country. But it also gives us the opportunity to push digital solutions to these populations. Then there is National Securities Depository Limited and Department of Posts, especially the latter, which will predominantly push a physical solution, because of their distribution and infrastructure.
You can already see four different strategies of niche developing. The one that will more likely be in a similar strategy or approach to us will be Tech Mahindra.
So you will be tapping both physical and digital?
Yes
Any targets have you set?
Full business plan already submitted to RBI; I can't share any information on that.
What is your view on payments banking services as a whole?
This is a transformative step in fulfilling the financial inclusion goal of the government and RBI. At present, almost 80 per cent of the transactions are cash-based, with physical cash. The theory is as you increase the velocity of cash, it allows the economy to grow at a faster pace.
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In the west, they digitised cash transactions at a fairly high transaction cost, whereas in India, because the government has smartly launched NPCI (National Payments Corporation of India), you have alternative networks such as IMPS, Rupay, which are running at a lower transaction cost. There is an opportunity the digitised transactions are at lower transaction cost. That is one whole set of opportunities that starts opening up. You are going to have models ranging from extremely digital models to extremely physical models.
There is a fair amount of complementary between the two models in itself. We are looking at something that plays into that complementary and might even look at getting a partner from that perspective provided that the RBI is open to us pursuing such a partnership. That is something we will start a conversation around.
What will be Chola's USP and what kind of synergy do you see from other group companies?
I will not be able to share our exact USP now. We will take a solution to the market, which will use both technology and our physical footprint. This will help in digitising cash transactions and providing additional services to existing and new customers of the payments bank. Chola, currently, has over 534 branches spread across the country and a captive base of over 750,000 customers, which is an immediate opportunity that can be tapped into.
The larger Murugappa Group eco-system offers an even larger base of rural customers and this is a definite plus for us. One advantage is we can start with our ecosystem. We have over 0.8 million truck drivers, and from Coromandel, there are a lot of farmers we can go and talk to.
There are several things within our own ecosystem we can talk to. Beyond that, if you look at combinations that if you can strike a partnership or in other ways.
Partnerships also help to get a lot of customers in. There are a fare amount of other opportunities as well, we can go after. But it is still early days. We are going to formulate a strategy around on how we should go after it.
A lot of our focus will be on financial inclusion. A lot of people might go after more affluent customer base. But we see opportunity at financial inclusion. The niche we will own the most is financial inclusion both urban and rural. It will be the payments bank that financially includes people both urban and rural.
Does Chola have technological capability?
We will develop the technology, which will be the best in class and technologies are also available in this space in the market. We can also partner with the technology providers. We can both develop and partner for technology.
As per norms, the new payments bank should have Rs 100 crore. Does Chola have enough capital? Also have you found the team, will it be internal? When will the operations start?
Cholamandalam Distribution Services has around Rs 40 crore, the balance will be pumped in (by Cholamandalam Investment and Finance). We have to build a team, will take some people from inside and recruit from outside too. To finalise the leadership for the new payments bank, we need to have a discussion with RBI.
They have specific requirements on what they would want and all our candidates will run with RBI to make sure they are comfortable with them. I can't give a timeline, but we will meet the deadline (18 months set by RBI).
Among the 11 firms, how do you see Chola? What are the strengths you carry?
Everybody is going to take different approach to this. Aditya Birla, Airtel, Reliance (Jio) and Vodafone are all in the telecom space already.
You have four different types of competitors here. One is the whole telecom-based play, which is the kind of well-known play. Then there is a whole second category, which is going to be fully digital in nature, which is the Paytm category.
The company, which is going to be closer to our category, is Tech Mahindra. The Tech Mahindra will basically partner with Mahindra and Mahindra Financial Services. Both of us then have a large physical distribution network across the country. But it also gives us the opportunity to push digital solutions to these populations. Then there is National Securities Depository Limited and Department of Posts, especially the latter, which will predominantly push a physical solution, because of their distribution and infrastructure.
You can already see four different strategies of niche developing. The one that will more likely be in a similar strategy or approach to us will be Tech Mahindra.
So you will be tapping both physical and digital?
Yes
Any targets have you set?
Full business plan already submitted to RBI; I can't share any information on that.