Recap plan in works for India Post Payments Bank

Viability plan includes ~2,000-crore infusion

The government is exploring options to make India Post Payments Bank viable, which include infusing about ~2,000 crore into it and merging the institution with regional rural banks (RRBS).

The payments bank, launched in January 2017, has not been doing well as a standalone entity and needs to be recapitalised, said an official in the know.

Email queries to the secretary, Department of Posts, and chairman, Postal Services Board, did not get a response. There was no reply to queries sent to the bank spokesperson either.

The government-owned bank will run out of funds in the first half of the next fiscal year, he said. While about ~2,000 crore is needed, it may not be sufficient in turning it around because its salary cost is high, he added. The salary bill shot up by around 33 per cent to ~264 crore in 2019-20 (FY20), from ~199 crore in 2018-19 (FY19), according to the bank’s annual report.

The bank’s loss per employee more than doubled to ~16.31 lakh in FY20, from ~7.49 lakh in FY19. There were plans to bring more employees on board, which the government did not allow, the official said.

The government has infused about ~1,435 crore into the bank since its inception. The Budget for 2020-21 allocated ~220 crore for it.

The government was considering converting the bank into a small finance bank, but the Reserve Bank of India

(RBI) guidelines mandate five years’ operations for such a conversion.

Seeking an exemption from the RBI for the government-owned bank would mean a host of other private-owned payments banks asking for the same relaxation, the official said.

The government is also exploring if the payments bank and RRBS can be brought under a holding company (holdco). Business Standard had earlier reported the government was working on a policy to bring RRBS under a holdco. Bringing them in the same wigwam would help the payments bank in advancing loans, which banks of this genre are not allowed to do, the official said.

The standalone payments bank model is challenging because it has no strong differentiating product, said Prakash Agarwal, head (financial institutions), India Ratings and Research. Payments banks have thin margins owing to intense competition in the digital payments space, he said.

“Transaction services are facing strong competition from wallet service providers, and the payments bank model needs to evolve by some tweaking for standalone entities to be commercially viable,” Agarwal said. At present, there are six functioning payments banks in the country.