Payments banks vs conventional lenders: Fitch counters Rajan

  • Agencies, New Delhi
  • Updated: Aug 20, 2015 17:16 IST

The proposed 'payments banks' will increase competition for public sector lenders, Fitch Ratings said on Thursday even as RBI governor Raghuram Rajan reassured they will complement the traditional banking sector.

"Their focus on smaller deposit holders and mobile banking will add to competitive pressures for public banks, and could potentially pose risks to their market share over the long-term," Fitch Ratings said in a statement.

Fitch also said the payments banks will pose risks to market share of traditional banks over the long-term.

The Reserve Bank on Wednesday gave 'in-principle' nod to 11 entities, including Department of Post, Reliance Industries, Aditya Birla Nuvo, Vodafone and Airtel, to set up payments banks and proposed such licences 'on tap' in future.

Fitch's reaction came just hours after Rajan said the new payment banks will not compete with traditional banks.

“Payments banks are an add-on to the banks rather than competitors,” said Rajan, adding that the committee that reviewed the licences was of the view that a number of different types of firms should be licenced to see what model works in this segment, " Rajan said, speaking at the second annual SBI banking conference.

“Payments banks will be feeders into the universal banks,” he said.

Payment banking licence will allow companies to collect deposits (initially up to Rs 1 lakh per individual), internet banking, facilitate money transfers, and sell insurance and mutual funds. They can issue ATM/debit cards, but not credit cards.

As regards to government's estimate that PSU banks would raise Rs 1.10 lakh crore from markets in four years, Fitch Ratings said it is "overly ambitious".

"The government's expectation that public banks will be able to raise an additional Rs1.1 lakh crore from the markets also seems overly ambitious, considering persistent low equity valuations. Valuations are unlikely to change until asset-quality woes begin to be addressed in a meaningful way," it said.

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