Dig­i­tal Wal­lets Say New Norms will Pinch Them

Cos say reg­u­la­tions is­sued by RBI have in­creased com­plex­ity and cost of op­er­a­tions

The Economic Times - - Front Page - Pratik.Bhakta @times­group.com

Mum­bai: Dig­i­tal wal­let com­pa­nies, sev­eral of which aim to take on the lead­ers in one of the fastest-grow­ing seg­ments in the ecom­merce in­dus­try, are ag­grieved over new reg­u­la­tions that have in­creased both the com­plex­ity and cost of op­er­a­tions. Many play­ers in­clud­ing Ama­zon Pay, Mo­biK­wik and PayU say the new KYC (know your cus­tomer) norms will in­crease the cost of do­ing busi­ness.

“It de­stroys the idea of a wal­let as an intermediate op­tion for cus­tomers; they might as well open a bank ac­count now,” said Ji­ten­dra Gupta, MD of Nasper­sowned PayU In­dia. On Wed­nes­day, RBI hiked the ini­tial net worth re­quire­ment for firms of­fer­ing pre­paid pay­ment in­stru­ments to .₹ 5 crore, from .₹ 2 crore now. Also, the net worth must go up to .₹ 15 crore within three fi­nan­cial years from the da- Min­i­mum Net Worth

5 crore 15 crore

COST OF KYC ₹

Ma­jor Play­ers Ama­zon Pay, Itz Cash, Mo­bik­wik, Ox­i­gen, Paytm, PayU, PhonePe

te of re­ceiv­ing au­tho­ri­sa­tion.

RBI also asked the firms to en­sure KYC com­pli­ance of ex­ist­ing users by year-end. Con­sumers fail­ing to com­plete KYC will be al­lowed to keep only up to .₹ 10,000 in wal­lets. If these ‘min­i­mum-KYC’ wal­lets are not con­verted into ‘full KYC’ ac­counts within 12 months, no credit fa­cil­ity can be pro­vided.

“It is a lit­tle sur­pris­ing. We had ex­pected RBI, hav­ing re­duced the lim­its for min­i­mum-KYC wal­lets to .₹ 10,000, will al­low them to con­tinue,” said Bipin Preet Singh, founder of Mo­biK­wik.

In a joint state­ment on Thurs­day, the two sides fur­ther said that they “will work to­gether to fur­ther ex­plore other mu­tual ar­eas of co­op­er­a­tion, that will be value ac­cre­tive for both the groups”, sug­gest­ing an al­liance around their DTH, en­ter­prise, and over­seas ca­ble busi­nesses could be in the offing in fu­ture. N Chan­drasekaran, chairman, Tata Sons, said, that the deal was the best pos­si­ble for the Tata Group and its stake­hold­ers. “Find­ing the right home for our long­stand­ing cus­tomers and our em­ploy­ees has been the pri­or­ity for us,” said. In an in­ter­view to ET pub­lished ear­lier this week, the Tata Sons chairman had de­scribed the debt-plagued Tata Te­le­ser­vices as ‘one of the big prob­lems’ he had to deal with. “We will ei­ther have to sell it or have a grace­ful exit,” he had said.

Bharti Air­tel chairman Su­nil Mit­tal said the deal would strengthen his com­pany’s mar­ket po­si­tion in sev­eral key cir­cles. “On com­ple­tion, the pro­posed ac­qui­si­tion will un­dergo seam­less in­te­gra­tion, both on the cus­tomer as well as the net­work side,” he said.

Un­der the con­tours of the present deal, Tata Te­le­ser­vices’ wire­less op­er­a­tions — con­sumer mo­bile busi­ness — with over 40 mil­lion mo­bile sub­scribers, ma­jor­ity of 5,000 em­ploy­ees, and around 178.5 MHz of air­waves — nearly 40% of which are 4G ready — spread across 19 cir­cles will be trans­ferred to Bharti Air­tel on a cash-free, debt-free ba­sis, the two com­pa­nies said in the state­ment. Tata Te­le­ser­vices also runs en­ter­prise and fixed­line & broad­band busi­nesses.

“The merger is be­ing done on a debt­free cash-free ba­sis, ex­cept for Bharti Air­tel as­sum­ing a small por­tion of the un­paid spec­trum li­a­bil­ity of Tata to­wards DoT, which is to be paid on de­ferred ba­sis,” the two com­pa­nies said. “All past li­a­bil­i­ties and dues to be set­tled by Tata,” their joint state­ment said, re­fer­ring to the roughly Rs 31,000 crore on Tata Te­le­ser­vices’ books.

A per­son fa­mil­iar with the mat­ter said that Bharti Air­tel will take care of ro- ughly Rs 1,500-2,000 crore of the Rs 10,000 crore air­waves auc­tion pay­ments that Tata Te­le­ser­vices needs to make to the gov­ern­ment over the next few years.

The Tata-Bharti dis­cus­sions have gone through var­i­ous twists and turns. Talks be­tween Chan­drasekaran and Mit­tal were ini­ti­ated soon after the for­mer took over as the chairman of Tata Sons about six months ago. As this news­pa­per re­ported on July 7, the two sides were in dis­cus­sions to eval­u­ate a mega al­liance in­volv­ing their tele­com, over­seas ca­ble and en­ter­prise ser­vices, and direct-to­home TV busi­nesses. But the talks fell through as Air­tel did not want to get bogged down in a multi-play buy­out in­volv­ing huge debt and mul­ti­ple stake­hold­ers. This was re­ported by this news­pa­per on Au­gust 4. The two par­ties have now agreed to a sim­pler trans­ac­tion in­volv­ing just the mo­bile busi­ness as a first step. An ex­ec­u­tive di­rectly fa­mil­iar with the dis­cus­sions said the talks re­sumed in earnest on Fri­day and the deal was stitched over the week­end. Gold­man Sachs was the ad­viser to the trans­ac­tion.

Tata’s wire­less op­er­a­tions will con­tinue as usual un­til the com­ple­tion of the deal, which will also see Bharti Air­tel get­ting the right to use part of the ex­ist­ing fi­bre back­bone net­work of Tata Te­le­ser­vices. Be­sides, the Tatas will re­tain their stake in tower com­pany Viom Net­works, and will take care of the li­a­bil­i­ties as­so­ci­ated with it, the two com­pa­nies said.

Shares of Tata Te­le­ser­vices (Ma­ha­rash­tra) – the listed unit of Tele Te­le­ser­vices which pro­vides ser­vices in the Mum­bai and Ma­ha­rash­tra cir­cles — surged 9.95% to close at Rs 4.42 on the BSE, while Bharti Air­tel’s scrip ended at Rs 400.05, down 0.83% on Thurs­day. Tata Com­mu­ni­ca­tions ended the day 2.1% higher at Rs 687.60. The BSE Sen­sex was up 1.09%. The deal an­nounce­ment was made after mar­ket hours. The Tatas on Thurs­day also said they were in ini­tial stages of ex­plor­ing com­bi­na­tion of Tata Te­le­ser­vices’ en­ter­prise busi­ness with Tata Com­mu­ni­ca­tions and its re­tail fixed­line and broad­band busi­ness with Tata Sky. “Any such trans­ac­tion will be sub­ject to re­spec­tive board and other req­ui­site ap­provals,” the com­pany said.

The em­ploy­ees of Tata Te­le­ser­vices are be­ing sep­a­rated on the lines of the two busi­nesses — con­sumer on one side and en­ter­prise & fixed­line and broad­band on the other.

For the 53-year-old Chan­drasekaran, the deal with Bharti marks the sec­ond sig­nif­i­cant re­struc­tur­ing of the group port­fo­lio since he as­sumed of­fice ear­lier this year. Last month, Tata Steel and Ger­man steel­maker Thyssenkrupp AG, agreed to merge their Euro­pean busi­nesses to be­come the sec­ond-largest steel­maker of the con­ti­nent.

“As soon as I came in, I looked at the port­fo­lio and made a list that in­cluded Tata Te­le­ser­vices, delink­ing Euro­pean and the In­dia busi­ness of Tata Steel, and com­mer­cial ve­hi­cles and pas­sen­ger cars of Tata Mo­tors,” he told ET a few days ear­lier.

Tata Te­le­ser­vices has been fac­ing im­mense fi­nan­cial pres­sure over the years amid ever-in­creas­ing com­pe­ti­tion. Its call to en­ter mo­bil­ity in 2002 through CDMA tech­nol­ogy didn’t suc­ceed and by the time it adopted GSM in 2008 – and got NTT Do­como to in­vest around Rs 14,000 crore for a 26% stake — it had al­ready fallen well be­hind the likes of Air­tel, Voda­fone and Idea. A bru­tal price war after the en­try of new op­er­a­tors in 2008-09 meant the com­pany con­tin­ued to post losses while debt con­tin­ued to mount, lead­ing to Do­como’s even­tual de­ci­sion to exit in 2014. With the Tatas un­able to find a buyer for its mo­bile busi­ness, the en­try of Re­liance Jio in Septem­ber 2016 — which led to a dra­matic in­dus­try dis­rup­tion as data and voice rates tanked — was the prover­bial last nail in the cof­fin, leav­ing the group with no op­tion but shut it or sell it at any cost.

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