Barely 2 years old Aditya Birla-owned Idea Payments Bank announces shutdown

Aditya Birla Idea Payments Bank Ltd (ABIPBL), which commenced its operation 17 months ago, is now shutting down its operations.

The closure of the payments bank was announced by ABIPBL CEO Sudhakar Ramasubramanian to its employees, who have been asked to leave (hat tip: @artijourno).

Entrackr also has verified the development independently.

We regret to inform you that we intend to discontinue our banking service, said the payment bank to its users in a letter. Though, the letter did not elaborate on reasons for the closure of the bank.

Already 160 employees have left the organisations and some have been shifted within Aditya Birla Group.

The last working day for employees is October 18.

ABIPBL is a joint venture between Aditya Birla Nuvo Ltd (51% stake) and Ideal Cellular (49% stake) commenced operations as a payments bank with effect from February 22, 2018.

This is not the first such development related to payment banks (PBs) shutting down operations due to not being able to find a viable business model around it. On July 15, Vodafone m-Pesa also shut shop.

There are many reasons, as per industry observers, for PB losing its steam in the country and players choosing to shut shops. First, there is lack of proper awareness about it amongst people and whatever little awareness is there has not been able to translate people into customers.

Importantly, the scope of monetization for payments banks is limited as they can't lend including many other is limitations. They are only allowed to accept savings and current deposits of up to Rs 1 lakh per customer.

Moreover, payments banks (PBs) are allowed to invest only in government securities, which offer lesser returns compared to other avenues such as mutual funds.

The limitation keeps smaller enterprises away from PB.

Nevertheless, Paytm and Airtel are said to have been successful in cracking the PB business model to an extent. Paytm payments bank claimed profitability early this year within two years of its operations.

It has posted profit to the tune of Rs 19 crore within the second year of its operation in fiscal 2019, As of April 2019, the bank has more than Rs 500 crore deposits in its savings account.

Despite posting a decent profit, many experts believe that payments bank is limiting particularly One97 Communications' capability as the banking business forbids it to get into lending.  According to popular opinion, lending seems to be the largest revenue contributor for any fintech play.

RBI data on payment banks revealed that Paytm Payments Bank and Airtel Payments Bank together command over 88% of the deposits in payment banks in India in 2018.

Many experts fear that the Reserve Bank of India has to make favourable grounds for payments banks. If not, they contemplate existing operators may think of surrendering the licence.

Besides, Paytm and Airtel, Fino, Jio and India Posts are other fully operational payment banks.