Our payments bank will break even in 7 years: Idea Cellular

If the Aditya Birla Group’s mobile telephony arm Idea Cellular is allowed to set up a payments bank, the entity would break even in seven years, the company has projected to the central bank.

Idea Cellular and its parent company, Aditya Birla Nuvo, on February 2 applied to the Reserve Bank of India (RBI) for a payments bank licence. AB Nuvo will hold 51% in the proposed bank while Idea Cellular will hold the rest.

Himanshu Kapania, Idea Cellular’s chief executive, told FE that the two companies will have to fund losses to the tune of Rs 600 crore during the first seven years of the bank’s operations. This is excluding the Rs100 crore that needs to be set aside as the minimum capital requirement for the new bank.

“To build up the payment banks business we will have to incur a massive distribution, servicing and education cost. We will have to build a robust platform, in line with our scale of operations, which will be able to handle the large-scale services we plan to roll out for our customers,” Kapania said in an interview.

“The total investment of Rs 700 crore would include the investment in building IT infrastructure, distribution and servicing outlets.”

Kapania said that as mandated by the RBI, the proposed payments bank will take deposits from customers and invest them in “well-defined government securities”. The arbitrage — the spread between the cost of raising deposits the interest earned from government securities — will be used to grow the business.

“In the long run we are very hopeful that a large number of these customers will use digital wallets and payments bank accounts to pay utility bills. We intend to make a very large merchant base so that the consumers can make sufficient online commercial transaction activities and we can satisfy their payment needs,” Kapania added.

Idea Cellular is hoping that the central bank will allow telcos to use information from the KYC forms, Kapania said. This will help Idea cut down on the cost and time incurred on gathering KYC details of its subscribers again and would allow existing subscribers to open an account by just sending an SMS.

“This modification by the RBI will enhance our ability to provide low-cost technology solutions, and win a large customer base rapidly,” Kapania added.

Idea Cellular is one of the four major telecom players to have applied for a payment bank licence. The others are Vodafone India, Bharti Airtel and Reliance Industries (RIL), which will soon roll out telecom services through its arm Reliance Jio Infocomm. Others who have applied for a permit include retail chains like the Future Group. Aditrya Birla Nuvo also runs a retail business, most notably through the Pantaloons chain of stores.

While Bharti Airtel has teamed up with Kotak Mahindra Bank for their proposed payment bank, State Bank of India is partnering RIL.

Crisil Research says that telecom operators are the ideal candidates for setting up payment banks, given their significant customer base in rural areas and well-entrenched distribution networks.

“Moreover, they (telcos) are already offering mobile wallet (m-wallet) services for remittances. The value of transactions through m-wallet has more than tripled in the last two years to over Rs 2,700 crore in the last fiscal, indicating the huge business potential,” a Crisil Research report issued in November said.