In an attempt to revolutionise India’s financial industry, regulators will grant licences to 11 new businesses to develop new payments banks. New licenses have only been handed out to private sector lenders sporadically in the past, which means that the sector is largely made up of state-backed institutions.
Reserve Bank of India governor, Raghuram Rajan, is expected to approve this principle so that a range of companies can start setting up this new form of bank, according to The Financial Times. The new financial technology will mainly be used over mobile phones and will accept transfers and deposits of up to Rs 100, 000. However, loans and other products will not be offered.
Rajan also believes that this new technology will allow those who are poorer to transact in cash and to then, move forward and further into the traditional banking sector.
The FT explains that telecoms and technology groups such as mobile company Airtel, mobile start-up PayTM and UK-based Vodafone have been successful applicants, in addition to many corporations which are managed by high-profile Indian businessmen.
Head of banking at PricewaterhouseCoopers in India, Shinjini Kumar believes that this big change can reform this industry in India. “Policymakers think the old methods of expanding the system aren’t working and something new is needed, led by technology. The fact that they [the RBI] have chosen people with deep pockets and strong technologies is a good sign,” Kumar says.
The FT also provides the success story of payment tech being adopted in Kenya as Vodafone’s M-Pesa has been used by over 65% of adults to transfer and store money, as well as buy basic goods.
CEO of Vodafone in India, Sunil Sood, mentions that the new banking licences would help the country become cashless. “The payment bank licence will enable us to offer a more comprehensive portfolio of banking and financial products and services, accelerating India’s journey into a cashless economy,” said Sood.
Implementation has been slow in India due to the drawbacks that regulations have posed on mobile wallet services, but the new bank licenses should eradicate these problems, as said in the FT report.