Bharti Airtel Ltd may convert its payment bank in to small finance bank

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Bharti Airtel Limited is planning to enter into a full-grown lending business by transforming its payments bank into a small finance bank. Sunil Mittal, Bharti Enterprises chairman recently stated that the company is planning to upgrade from a payments bank to a small finance bank in a bid to attract large depositors.

According to Sunil Mittal, Bharti enterprises chairman the company is seeing a lot of transactions for its payments Bank and has been able to reduce churn of mobile customers due to this offering. In the future, it will look to get its payment bank license upgraded to a small finance bank, which could enable lending and increase deposit sizes, and it’s currently restricted to $1,500.

Bharti Airtel’s monthly churn in the mobile services fell 1.7 percent in the 3rd quarter from 2.2 percent in April-June. Being a payments bank can only provide services such as savings bank account, remittance services, and other payment options but Bharti Airtel is focusing to grow from a lending bank to a small finance bank. RBI working committee recommended that payment banks, who are willing to upgrade into small finance lenders, can now apply for that if they have completed 3 years of operations. Airtel Payments Bank has already completed 4 years of operation which means they are eligible and soon be a small finance bank. A payments bank looking to convert into a small finance bank will have the ability to start a lending business, which would result in a more profitable use of the deposits it gathers from its customers.

Payments banks are allowed to invest 75 percent of their demand deposit balance in government securities or treasury bills with maturity up to 1 year. From the remaining 25 percent, the payments banks can also invest in certificate of deposits. The RBI had granted in-principle approvals to 11 entities to start payments banks in 2015. Currently, only 6 payment banks are operational in India, they are, Paytm Payments Bank, Airtel Payments Bank, India Post Payments Bank, Fino Payments Bank, Jio Payments Bank, and NSDL Payments Bank.

The RBI working group has recommended an increase in the initial paid-up voting equity share capital/net worth required to set up a small finance bank to Rs 300 crore, which is currently Rs 200 crore. At first, when licensing guidelines for small finance banks were issued, it was prescribed that the min- paid-up equity capital requirement for setting up a small finance bank would be Rs 100 crore. And for a non-banking financial company converting into a small finance bank, the minimum net worth would be Rs 100 crore.

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