State Bank of India (SBI) chief Arundhati Bhattacharya today again expressed fears over the entry of payments banks, saying they are agile and have an edge as they are not bound by industry-level wage agreements which can lead to 'a dog-eat-dog's world'.
"Existing universal banks stand to face challenges given the fact that these banks will be coming in without any risk, that they will be coming in with an agile system and delivery models and that they've not been held hostage by industry-level agreements and wage limits," she said.
Citing the experience of e-commerce firms, she said if the new banks have been given to big industrialists, and if they decide to burn capital to gain market share initially, it will be a very difficult situation for the existing lenders.
"It is going to be a dog-eat-dog's world," she added.
Bhattacharya's reference of the payments banks not being held hostage by legacy issues like wage settlements refers to the just-concluded negotiations with unions, wherein the lenders have committed for a 15 per cent hike in salaries that has resulted in greater provisioning and dented profits.
It can be noted that India's largest lender has picked up as much as 30 per cent stake in the payments bank entity that Reliance Industries will be launching soon.
Last week too, during a discussion with RBI Governor Raghuram Rajan at a finance conclave, Bhattacharya expressed fears about the payments banks eating into the business of universal banks due to their technological advantages.
Bhattacharya today reiterated that payments banks, for which RBI issued in-principle nods to 11 aspirants last week, will "cannibalise our existing customer base".
Therefore, it is incumbent on the existing lenders to think of strategies to take on the new entities, she said.
On August 19, as many as 11 entities such as Reliance, Airtel, Vodafone, Birla Group and India Post, among others, were granted in-principle nod by RBI to set up non-lending payments banks as part of the financial inclusion drive.
Bhattacharya further said these nimble new entrants can cannibalise the universal banks' existing customer base, which she described as a "real challenge."
When their agile systems and delivery models come together, competition is going to be tougher. All of us incumbent players must look at it and decide what should be our response, she said.
