Mahindra group’s IT arm Tech Mahindra has become the latest payments bank licensee to drop its plans citing competition and a long gestation period, shortly after Cholamandalam Investment and Finance Company and the Dilip Shanghvi-led joint venture had backed out.
“The business case that we had for this proposition on does not stack up anymore for us because of both changing market conditions and the number of people who are into this business,” Jagdish Mitra, who heads the Strategy for Tech Mahindra, told The Hindu. “The whole business case does not turn out to be a viable proposition.”
Long gestationThe Board of Directors of the company, at its meeting held on Tuesday, has decided that the company will not pursue this opportunity (payments bank), the IT major said.
In August last year, the Resereve Bank of India had awarded in-principle licences to 11 entities including Reliance Industries, and Aditya Birla Group, to start payments banks. These players were given 18 months to start operations, failing which the licences will stand cancelled.
Mr.Mitra said the company conducted ground research and found the present level of penetration of smartphone and services being offered need to increase.
Long gestation period is also one reason that prompted Tech Mahindra to withdraw. “It has a very long gestation period, ideally between 4 to 5 years,” he said.
In addition, the revenue stream for a payments bank is limited. RBI has not allowed payments banks to offer loans. Their main objective is to provide remittance services.
Revenue stream“The revenue stream for us is limited, we are not allowed to lend, which is obviously going to be a challenge. We knew about it though. But having that in the condition would have helped,” Mr. Mitra added.
Cholamandalam also cited competition and long gestation period as one of the reasons for it not to pursue payments bank plan. Dilip Shanghvi, promoter of Sun Pharmaceiticals-led payments bank venture, in which IDBI Bank and Telenor Financial Services picked up stake, also said they are dropping the plan but not cited any reason.
On Monday, S.S. Mundra, Deputy Governor, Reserve Bank of India, had expressed his displeasure with entities surrendering their payments bank licence and said it would explore the possibility of a processing fee for the applicants.
