JMRA16 Dec 118

Priyamvada Mishra et al.
, Journal of Management Research and Analysis (JMRA)

Available online at http://jmraonline.com
ISSN: 2394-2770, Impact Factor: 4.878, Volume 05 Issue 4(1), December 2018, Pages: 89-94
IS PAYMENTS BANK A VIABLE BUSINESS OPTION IN INDIA?

1
PRIYAMVADA MISHRA, 2 UJJWAL SINGH and 3 SIDDESH WALI
1,2
(B.Com Professional, Department of Professional Studies, Christ University, Karnataka, India)
3
(Target Corporation, Bangalore, India)
Abstract: The primary purpose of this research is to study the viability of Payments Bank as a business option
and study if it is a profitable venture or not. Present paper gives information about what are Payments Banks,
sources of income for Payments Bank, Analysis and interpretation of key accounting ratios using bar diagrams,
analysis of overall operating losses for two consecutive financial years.
Key Words: Payments Bank, RBI, Viability, Accounting Ratios, bar diagrams, Financial Inclusion
1. INTRODUCTION
Payments Bank is certainly a new and emerging concept in India and its aim is to make more people in the
rural areas aware about the financial system and make the whole process of opening and operating a bank
account easier by making it available at their fingertips. Reserve Bank of India had formed a committee on 23 rd
September 2013 on Comprehensive Financial Services for Small businesses and Low Income Households which
was chaired by Nachiket Mor. The committee on 7th January 2014, submitted a report recommending the
formation of a new category i.e. Payments Bank and on 19 th August 2015, RBI gave the in-principle license
with a validity of 18 months to 11 entities for the launch of Payments Bank. Out of 11 entities, only 6 are
operational now. In recent years due to demonetization and several initiatives taken by the government such as
Digital India has created an entirely new space and an untapped market with a great potential and with a lot of
people shifting to digital payment options such as UPI, Digital wallets such as PayTm, Free charge and many
more, a new form of bank has emerged which is the Payments bank which was conceptualized by the Reserve
Bank of India (RBI) and is basically a bank but only online and it cannot issue loans. Payments Banks is a
contemporary model of banks which can accept a limited deposit, which is presently limited to Rs. 1,00,000
only and it cannot issue loan or credit card. Payments Bank can operate savings accounts and current accounts.
2. REVIEW OF LITERATURE
2.1 Aneja, D. (2016). Alternate Revenue Models for Payments Banks
This article was published by Ernst & Young and it firstly talks about the background of the Indian
market and tells us that how the Indian population is comfortable with the cash based economy and how the
government has taken many measures to move the economy into a more cashless one. It also states the
challenges that a payments bank company would face to acquire customers. It then moves on to building the
Payments bank operating model and creating a low cost structure and a lean operating model. It also says that
the success of Payments Bank depends on redefining the traditional bank services that are provided by giving
their customers services such as providing a more simple and fast banking experience. It then moves on to
identifying the revenue adjacencies such as Micro-Savings, creating a large scale access to credit, merchant
acceptance, a Marketplace for financial services, data mining, etc. The article finally concludes by saying that as
the Payments Bank ecosystem develops, an important consideration for RBI would be to frame regulations
which allow the Payments bank to operate on a lean cost structure whilst being given the freedom to experiment
with innovative solutions.
2.2 Geetha, I. (2018). Role of Payment Banks in India: Opportunities and Challenges
This paper mainly focuses on the scope of the payments bank in India. It says that the non-inclusion of
banks in the rural India is one of the major challenges faced by the Indian economy. This paper tries to evaluate
the perceptions of the people in relation to Payments Bank using qualitative as well as quantitative analysis. The
qualitative data analysis is done by conducting a survey and then making a chart using the figures collected from
the survey. The quantitative data analysis is done using ANOVA and SPSS. The paper concludes by saying that
the rural people and the small and medium business owners are willing to use the Payments bank if they are
aware of the same and thus the goal of financial inclusion of small business owners and the small income people
into the banking ecosystem would be achieved. It gives some recommendations such as conducting awareness
campaigns, recommending Airtel to use its existing customer base of telecom services and convert them into the
users of their payments bank, as well as acceptance as an alternative source of transfer.
2.3 Rathord, P., Vidyashree, D. V., & Joseph, S. (2017). Customer Awareness on Payment Banks, the latest IT-
enabled Indian Banks connecting people – An Empirical Study
This article by Dr. Pralhad Rathod, Vidyashree D V and Seema Joseph talks about Payments Bank and
its features and provides an insight on the awareness among people towards Payments Bank. For this paper they
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Priyamvada Mishra et al., Journal of Management Research and Analysis (JMRA)
collected both primary and secondary data. The primary data was collected with the help of a structured
questionnaire and the responses were collected from people residing in Bangalore and various statistical tools
like ANOVA, Post hoc tests were used to extract the output. After conducting their research, they concluded
that the level of awareness among people for Payments Bank was very low in the age group of 25 years and
above, and in the age group of 18-25 years it was the highest. Also, the awareness regarding various features
and services provided by the Payments Bank was very low among people. Hence to increase the awareness
among people, the companies have to actively promote its complete set of services and features. This article also
talks about how Payments Bank can help the government’s vision of Digital India and Cashless Economy and
concludes that Payments Bank is positively helpful.
2.4 Sandanshive, V. R., & Katdare, V. V. (2015). Analysis of In-Principle license entities to act as payments
banks: Financial Inclusion Perspectives
This research paper assesses the different types of banking structures in India and the importance of
Payments Bank. Providing specialized services and deepening financial inclusion is a major challenge for the
government and the introduction of Payments Bank was to solve these issues. Although Traditional Banks are
available in every metropolitan city and towns with several branches but their presence in rural of the country is
still comparatively less. This led to the introduction of Payments Bank which is an alternative to traditional
banks, where instead of having brick and mortar branches, banking services could be provided through phone
which would ensure last mile connectivity, which the traditional banks have been unable to provide in the rural
areas of the country. Out of the 11 entities, some of them have a wallet service already in the market, so shifting
customers from wallet to Payments Bank would not be a problem.
This article summarizes the role of a Payments Bank, its importance in financial inclusion and ways
how it can provide basic banking services to a large number of people who do not have access to proper banking
services.
2.5 Naik, R. V., Firdous, P., & Harika, P. (2018). A study on the role of payment banks in India - Financial
Inclusion
This article by Dr. V. Ramesh Naik, P. Firdous and P. Harika talks about the role of Payments Banks,
its role in the banking sector, and its functioning in India. Payments Bank was introduced by the RBI in 2014,
with an objective to bring banking services to people in areas of the country who do not have access to proper
banking services in their vicinity. The biggest difference between a traditional bank and a payments bank is that
payments banks are not allowed to issue loans or credit cards which are one of the biggest revenue generating
sources for traditional banks. Payments bank was launched to help small business, low income households, and
farm and migrant workers who do not have access to banking services readily, Help them for transferring /
receiving wages, subsidies or other social welfare schemes on healthcare, education and various cash benefits
directly from the government in their accounts. As they do not have a high volume of transaction, the maximum
limit of one lakh rupees per account would be sufficient for them.
3. RESEARCH DESIGN
3.1 Scope of Study
11 Payments Banks had acquired the license. Out of them, only 4 are operational. Indian Post Payments
Bank and Fino Payments Bank recently started off their operations so their financial reports are not yet
available. For the purpose of our study, we are focusing on two popular Payments Bank:
 Airtel Payments Bank Limited
 PayTm Payments Bank
Time Span – A time span of two financial years (1St April 2016 - 31st March 2017 & 1st April 2017 – 31st March
2018) are being taken into account while doing the analysis.
3.2 Statement of Problem
Payments Bank is a new form of differentiated banking model conceptualized by the RBI. From the
time RBI has granted license to the 11 companies, to this day 6 of them have launched Payments Banks, whilst
only 3 of them are operational and are presently facing heavy losses. Thus, the gap the study is trying to bridge
is that whether the Payments Bank can be a viable business option or not.
3.3 Source of Data
1) The data collected in this research is secondary in nature.
2) The data is collected from various websites to review the literature and perform the analysis by comparing the
accounting ratios for two consecutive years of the selected companies.
3.4 Hypothesis
H0 – Payments Bank is not a viable business option
H1 – Payments Bank is a viable business option
3.5 Objective of the Study
1) To determine the viability of Payments Banks.

2) To analyze the financial performance of Payments Banks using key accounting ratios, and bar diagrams
3) To determine the various issues and bottlenecks for Payments Bank.
3.6 Limitations of the Study
1) A limited time span of one year is taken into account which limits the scope of research.
2) The study is based on financial statements of the company, which might be misstated; hence, this can limit
the accuracy of the analysis which is based on the financial reports
3) This research paper is mainly focusing on 2 out of 4 operational Payments Bank due to unavailability of
sufficient data; hence, it does not represent the true picture of the whole industry.
4. METHOD OF ANALYSIS
For the purpose of our study, we are doing a comparative analysis of the following aspects as mentioned
below:
1) Change in percentage of key Accounting Ratios over the past two financial years ( Year ending 31 st March
2017 and 31st March 2018)
2) Comparative Analysis of the Profit After Tax for both the selected companies over the past two financial
years (Year ending 31st March 2017 and 31st March 2018)
3) RBI’s stringent norms and regulations for payments bank
Accounting Ratios: Accounting Ratios or Financial Ratios help to determine the efficiency and
calculate the profitability of a company or any business organization concerned based on its financial reports.
We are considering 3 key accounting ratios which are
1) Debt to Equity Ratio
2) Current Ratio
3) Return on Assets
Formulae used to calculate the following ratios:
a) Debt to Equity Ratio
Total External Liability / Total Equity
b) Current Ratio:
Current Assets / Current Liabilities
Where,
Current Assets = Inventory + Accounts Receivable + Cash Equivalents + Cash
Current Liabilities = Accruals + Accounts Payable + Notes Payable
c) Return on Assets:
Net Income / Average Total Assets
Change In Percentage of Key Accounting Ratios from Financial Year 2017-2018
No. Particulars Airtel Payments PayTm Payments
Bank Bank
1 Debt Equity Ratio (0.05%) (0.03%)
2 Current Ratio 0.00% 0.00%
3 Return on Assets 4.00% (1.96%)
Debt Equity Ratio

0.00%
Airtel Payments Bank Paytm Payments Bank
-0.01%
-0.02%
-0.03% Debt Equity Ratio
-0.04%
-0.05%
-0.06%

Return on Assets
5.00%
4.00%
3.00%
2.00%
1.00% Return on Assets
0.00%
-1.00% Airtel Payments Bank Paytm Payments Bank
-2.00%
-3.00%
Current Ratio
0.60%
0.50%
0.40%
0.30%
Current Ratio
0.20%
0.10%
0.00%
Comparative Analysis of the Profit after Tax for both the selected companies over the past two financial years
No. Particulars Airtel Payments Paytm Payments

Bank Bank
1 Change in Profit After (100.79%) (-49.40%)
Tax In Percentage for
FY (17-18)
2 Change in Profit After (127%) 100%
Tax In Percentage for
FY (16-17)
Change In Profit After Tax In % for FY

(17-18)
0.00%
Airtel Payments Bank Paytm Payments
Bank
-50.00%
Change In Profit After Tax
In % for FY (17-18)
-100.00%
-150.00%

Change In Profit After Tax in % for Fy (16-

17)
200%
100%
Change In Profit After Tax in %
0%
for Fy (16-17)
-100%
-200%
RBI’s stringent norms and regulations for payments bank
According to RBI, Payment banks must invest 75% of its demand deposits in government issued
treasury bills and government linked security bonds, which currently stands at 7.224 % pa and 6.2% pa
respectively. This is a major challenge for Payments bank as they pay 5.5% interest on savings account and it is
very difficult for them to gain profits after paying interest to its customers and its operating costs.
Also various rules and regulations by RBI regarding KYC of customers and non-compliance of
operational guidelines have resulted in RBI banning airtel, paytm and fino payments bank in just a span of two
years for atleast 6 months each which has seriously hampered people’s trust in these banks and also resulted in
losses for them, also huge fines were imposed by RBI for not adhering to its rules.
Banks Dates when they were banned from adding new Dates when the bans
accounts were lifted
Paytm payments Bank 20/06/18 31/12/18

Airtel Payments Bank 18/12/17 13/07/18
Fino Payments Bank 20/04/18 22/09/18
5. INTERPRETATION
As we can see from the above data, both the payments bank companies have registered a negative
change in profit after tax for the financial year (17-18) with Airtel payments bank having a loss of almost
100.79% when compared to the profit after tax of the financial year (16-17) and Paytm Payments Bank
registering a negative change from the previous financial year of almost 49.40%. Further on, after analyzing the
key accounting ratios for both the Payments Bank companies, the debt to equity ratio of both the companies
have had a negative change which means that the risk factor relating to the amount of debt has increased from
the previous year for both the companies, the current ratio of both the companies has remain unchanged over the
past two financial years which tells us that even though both the companies have increased their debt the current
assets and liabilities remain the same for both of them which indicates how high the risk is in both the
companies. Finally, the Return on Assets (ROA) of Airtel has been positive when compared to the previous
financial year; however Paytm Payments Bank has had a negative Return on Assets (RoA) which indicates a
non-efficient use of the resources of the organization.
Strict rules by RBI for Payments Bank has hampered their growth and also bottlenecks like a maximum
limit of rupees 1 lakh per account, no loan or credit facilities to be offered and 75% of total demand deposit to
be invested in government linked security bonds and treasury bills which have a very low interest rate has
resulted in payments banks to suffer huge losses.
6. FINDINGS AND SUGGESTIONS
After analyzing the above data we have found that the risk taken by both of these companies is high.
Since starting their operations Airtel Payments Bank has reported losses in their past 2 financial years
whilst taking on more debt to expand their operations and to fund their customer acquisition however their
Return on Asset (RoA) shows that they have used their assets efficiently which is a good sign and also indicates
that Airtel Payments Bank could reduce their losses in the next financial year by efficiently utilizing their Assets
and resources.
Paytm Payments Bank on the other hand had reported a profit in its first year of operations but in the
next financial year posted a negative change in their profit after tax of 49.40% which was a loss of Rupees 2.27
crores, their debt to equity ratio and Return on Assets have also had a negative change from the previous year

whilst their current ratio remained unchanged, this indicates that whilst Paytm Payments Bank has taken on
Debt which is higher than the value of the Assets it has leveraged its ability to liquidate funds if necessary has
not changed as the current ratio has remained unchanged and its operations have not been efficient as its Return
on Assets (RoA) has also been negative, indicating that the Assets and resources of the organization have not
been used efficiently.
The following are the suggestions for the Payments Bank Operators:
1) They should simplify the whole experience in-order to attract more small income and small business
owners.
2) They should create awareness campaigns in-order to make more people in the rural areas aware about
Payments Bank.
3) They should follow a lean operations model and a low cost structure which will provide a competitive
advantage to them.
7. CONCLUSION
Given the current market scenario, as the Payments Bank is still in its initial stages there are a lot of
regulations put on their operations by the Reserve Bank of India (RBI) which has restricted their operating
freedom and has not allowed them to find other innovative solutions to the challenges that they face. The people
in rural areas are not aware about these Payments Bank and thus the Payments Bank companies also face the
challenge of acquiring more customers. In the current market scenario, Payments Banks are not a viable
business option in India given the challenges that they face and all the regulations put by the Reserve Bank of
India (RBI) on them.
8. BIBLIOGRAPHY
1) Aneja, D. (2016). Alternate Revenue Models for Payments Banks.
2) Geetha, I. (2018). Role of Payment Banks in India: Opportunities and Challenges
3) Rathord, P., Vidyashree, D. V., & Joseph, S. (2017). Customer Awareness on Payment Banks, the latest IT-
enabled Indian Banks connecting people – An Empirical Study
4) Sandanshive, V. R., & Katdare, V. V. (2015). Analysis of In-Principle license entities to act as payments
banks: Financial Inclusion Perspectives
5) Naik, R. V., Firdous, P., & Harika, P. (2018). A study on the role of payment banks in India - Financial
Inclusion

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Priyamvada Mishra et al.

, Journal of Management Research and Analysis (JMRA)

IS PAYMENTS BANK A VIABLE BUSINESS OPTION IN INDIA?

Homepage: http://jmraonline.com, Email: jmraeditor@gmail.com Page 89

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Debt Equity Ratio

-0.03% Debt Equity Ratio

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No. Particulars Airtel Payments Paytm Payments

Change In Profit After Tax In % for FY

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Change In Profit After Tax in % for Fy (16-

Paytm payments Bank 20/06/18 31/12/18

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