Vodafone-Idea To Wind Down Aditya Birla Payments Bank

The Vodafone-Idea telecom combine has decided to wind up the operations of Aditya Birla Payments Bank Ltd, 17 months after the venture was launched.

In a exchange filing on Friday evening, Vodafone-Idea said that the board of directors has received regulatory approvals to wind down the business. The decision was taken “due to unanticipated developments in the business landscape that have made the economic model unviable,” the filing said.

The Aditya Birla Payments Bank is a joint venture between Aditya Birla Nuvo Ltd (51 percent stake) and Ideal Cellular (49 percent stake). It was one of seven operational payments banks in the country, licenced under a differentiated banking model in 2015. Payments banks were seen as entities that could further financial inclusion. They were allowed to take small deposits but were not allowed to lend, making the model commercially challenging.

Aditya Birla Payments Bank struggled to garner deposits, despite the reach of its telecom network. As of December 2018 the payments bank had mobilised Rs 5.62 crore, BloombergQuint reported in May based on information received from the Reserve Bank of India via a Right To Information request. Airtel Payments Bank and Paytm Payments Bank have the largest deposits, the data showed. Overall, payments banks held Rs 780 crore in deposits as of December 2018.

In a statement, the Aditya Birla Group said that the company has made full and complete arrangement of funds for return of customer deposits and for meeting its all liabilities. The statement added that operations will continue for a limited number of banking transactions so that customers can withdraw and transfer their balances.

Challenging Model

The RBI released guidelines for the licensing of payments bank in November 2014. The rules place a cap on deposits at Rs 1 lakh per customer and prevent any direct lending. Since industrial corporations were allowed to participate in this banking model, strict restrictions were also placed on where these deposits could be deployed, with a large chunk of them mandated to be invested in government securities.

As a result, payments banks earn no interest income on loans and little on deposits. This means that payments banks are solely reliant on the fee income they earn for processing transactions and cross-selling third-party services.

Most payments banks were being used for remittances but with a number of digital options emerging for bank transfers in the last few years, that market too has become crowded.

As a result, payments bank have found it difficult to become profitable. In 2017-18, payments banks reported collective losses of Rs 516.5 crore, showed data included by the RBI in its ‘Trends and Progress In Banking’ report released in December 2018. Data for 2018-19 is not available.