Payments Banks Deposits Double Despite Widening Losses: RBI Report

Deposits collected by payments banks doubled in the last fiscal. Yet, they suffered losses for the third straight year as operating costs rose.

Payments banks mobilised deposits worth nearly Rs 883 crore in the financial year ended March 2019 compared with Rs 438 crore in 2017-18, the Reserve Bank of India said in its report on ‘Trend and Progress of Banking in India for 2018-19’. At the same time, consolidated losses of all payments banks rose to Rs 626.8 crore in 2018-19 from Rs 515.6 crore a year ago.

That’s because operating expenses of payments banks increased even as their net interest income and non-interest income improved, the report said. To be sure, the number of payments banks increased to seven in 2018-19 from five in 2017-18.

“The limited operational space available to them and the large initial costs involved in setting up of the infrastructure imply that it may take time for payments banks to break even as they expand their customer base,” it said. High operational costs of running a payments bank “suggests that they are yet to achieve the optimal scale to break-even or attain profitability”.

Efficiency of payments banks improved as the cost-to-income ratio fell to 124.6 percent as of March 2019 from 142.2 percent a year ago. Also, profit margin improved as for every Rs 100 worth of revenue, the payments banks made a loss of Rs 27 in 2018-19 against a loss of Rs 43.8 in 2017-18, according to the report.

Growth In Payments & Remittances

Payments banks were set up to be asset-light that facilitated deposits and payments services on behalf of customers who couldn’t physically access formal bank branches. But since they can’t provide loans and have to pay interest on the deposits collected, their revenue model is restricted to earning fees on processing payments for customers and cross-selling other financial services.

• Inward remittance transactions processed by payments banks jumped nearly fourfold year-on-year to Rs 89,653 crore in 2018-19.
• But outward remittance transactions, too, increased more than twofold over the last year to about Rs 1.11 lakh crore in 2018-19.

“In 2018-19, transactions through unified payments interface took over from e-wallets as the most prominent channel for inward and outward remittances in terms of both value and volume,” the report said.

• Inward remittances processed through e-wallets fell to Rs 5,659 crore in 2018-19 from Rs 24,340 crore in 2017-18.
• Outward remittance transactions via e-wallets reduced to Rs 11,562 crore in 2018-19 from Rs 16,545 crore in 2017-19.
• Inward remittance transactions on UPI rose to Rs 56,543 crore in 2018-19 from Rs 1,648 crore in 2017-18
• Outward remittance transactions on UPI increased to Rs 57,220 crore in 2018-19 from 2,343 crore in 2017-18.