MC Exclusive: Payments Council, banks to seek RBI okay for entry into small-ticket loans biz

RBI

In a second attempt to knock on the Reserve Bank of India's (RBI) doors for permission to enter the small-ticket loans business, the Payments Council of India, along with payments banks,  is likely to make a representation to the RBI on this matter.
Highly placed sources say the request is expected to be made in a week or so. “There have been a few conversations with the regulator on the matter.  This would be the second time that we are approaching the regulator with this request. However, this time around we are expecting that our demands may be considered more favourably,” said the CEO of a large payments bank. Small-ticket loans are loans up to Rs 2 lakh and are likely to be unsecured in nature.

With most payments banks, including India Post Payments Bank, registering net profits in FY24, industry players are hopeful that their request for entry into the small loans business may be considered favourably by the regulator.

“Payments banks in the last six years have proved to be a commercially viable model, and this is something that the regulator is also beginning to acknowledge. However, to get to the next stage of viability and sustainability, exploring the business of lending would help,” said another CEO of a payments bank while explaining the rationale behind the demand from the industry.

The highly placed sources cited say that if allowed to extend small business loans, it may be a test case for the regulator before handing out small finance bank licence to eligible players.

To be sure, Fino Payments Bank, one of the largest players in terms of revenue and net profit, has applied to the regulator to convert to a small finance bank. The application, made in January 2024, is pending approval.

Similarly, the industry has also requested the regulator if their liabilities, that is deposits, can be put to better use going forward. Payment banks can raise deposits up to Rs 2 lakh and 75 percent of such deposits need to be deployed only in government securities.

The industry has sought more options on deploying their deposit base, including placing them with other banks as well. “This should help us with asset-liability mismatch management going forward,” said a chief of another payments bank.

Email sent to Payments Council of India on this matter remained unanswered till the time of publishing this report.

Not much of a refresh

RBI issued 11 payments bank licences in August 2015, of which only five namely - Airtel Payments Bank, Fino Payments Bank, NSDL Payments Bank, India Post Payments Bank and Jio Payments Bank are operational. In January 2024, the RBI halted the business of Paytm Payments Bank and the bank hasn't been able to accept deposits or process payments since then.

In terms of regulatory changes, for the first time since licensing, in April 2021, the banking regulator increased the permissible limit for deposit acceptance by payments banks from Rs 1 lakh to Rs 2 lakh. Payments banks have the option to convert to small finance banks after five years of operations.