Mahindra becomes third to abandon payments bank plans

The Mahindra group on Tuesday became the third entity to drop its payments bank proposal, saying business profitability would take a long time due to "aggressive posturing" by many deep-pocketed players.

Tech Mahindra is the third applicant to abandon its plan to set up a payments bank after Cholamandalam, which quit last month and Dilip Shanghvi-IDFC Bank-Telenor combine last Friday.

"Over a period of time, we have realised that the amount of aggression that has come into the marketplace only erodes the margins," Tech Mahindra managing director and chief executive C P Gurnani told reporters in Mumbai, after its board decided not to pursue the opportunity.

After the Reserve Bank of India had given in-principle approval for payments banks to TechM and 10 others last August, the Mahindra Group had said group company Mahindra Finance would be an equal partner in the bank.

Gurnani said profit margins were always expected to be "razor thin" in the payments bank business, but the aggressive posturing by competition which has the who's who of the telecom world, including the Ambanis, the Birlas, Airtel and Vodafone, among others, only made it realise that "business profitability will take a much longer period".

These withdrawals come at a time when the RBI is in the process of giving out the final licences for payments banks.

When asked if RBI conditions are onerous, Tech Mahindra chief strategy officer Jagdish Mitra said the regulator cannot be blamed for pursuing the broader goal of financial inclusion.  But he added that "it has to make business sense because at the end of the day if it doesn't make business sense then the objective of financial inclusion is not met."

Mitra said they did a field surveys to gauge the sense of the market, after which it took decision. He said though there were no major investments from the group in the venture, it had spotted the top tier executives to drive the business.

The announcement comes a day after RBI deputy governor S S Mundra had expressed displeasure over licensees abandoning their plans to set up payments banks. "We would certainly feel little aggrieved because lot of efforts from the part of RBI go in processing these applications," Mundra said.  (See: RBI unhappy as payments banks licensees drop out).

The 11 in-principle licensees were selected after sifting through the proposals of nearly two dozen applicants.

The approval is valid for 18 months, during which time the applicants must comply with requirements under the guidelines and fulfil the other conditions as may be stipulated by the apex bank.

The payments bank will not be allowed to undertake lending services and non-resident Indians will not be allowed to open accounts.