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After RBI nod, Reliance, Airtel, Vodafone to set up payments banks soon

MUMBAI: Banking, as we have known it, appears headed for an upheaval. The Reserve Bank of India on Wednesday 'in principle' cleared 11 entities – including department of posts, top conglomerates such as Reliance Industries and Aditya Birla Group, telecom giants like Airtel and Vodafone, and a number of tech and finance companies – to set up 'payments banks'.Unlike 'universal banks' – as the regular banks are called – payments banks can accept deposits up to only Rs 1 lakh and cannot grant loans. They can only deposit their money in government bonds. They can issue debit cards but not credit cards. Other than this they can provide all the services of a universal bank.Ever since the first round of bank nationalization in 1969, only two private business groups have been allowed to promote a bank. Although most corporate houses had applied for a universal bank licence, they all drew a blank, with only IDFC and Bandhan Microfinance being granted licences earlier this year.Payments banks will largely depend on mobile and ATM infrastructure to provide transaction banking services. Opening an account is expected to be like acquiring a pre-paid mobile number. Analysts expect intense competition, which should drive down charges for remittances, fund transfers and other banking transactions. Customers who do not have the means to maintain minimum balance will be welcomed into these banks as revenue will be earned through transaction charges and not on the spread of interest between deposits and loans.What makes this round of licensing disruptive is that it brings together giants from across industries. For instance, the new payments bank to be set up by the department of posts will have access to the 1.55 lakh post offices across the country. State Bank of India will pick up a 30% stake in RIL's bank which will use Reliance Jio's 4G network to provide banking services. Airtel has the backing of Kotak Bank, which will hold a 19.9% stake in the proposed bank.Announcing the list of successful applicants, RBI said that at this stage it would be difficult to predict which model will be successful in the emerging business of payments. The committee of the central board, which decided the final shortlist from among 41 applicants, chose entities with experience in different sectors and with different capabilities so that different models could be tried.Besides the five named earlier, the successful applicants are National Securities Depository, Tech Mahindra, Sun Pharma promoter Dilip Shanghvi, Paytm founder Vijay Shekhar Sharma, Cholamandalam Distribution Services, and Fino PayTech. The unsuccessful 30 include Videocon and Kishore Biyani, Vakrangee Software and a host of digital payment companies. RBI has however said that it will use the learnings of this round of licensing and in future grant permissions 'on tap'.“The in-principle approval granted will be valid for a period of 18 months, during which time the applicants have to comply with the requirements under the guidelines and fulfil the other conditions as may be stipulated by RBI,” the central bank said in a statement. On being satisfied that the applicants have complied with the requisite conditions laid down by it as part of in-principle approval, RBI would grant a banking licence.