Tech Mahindra Drops Out of Payments Bank Race

Tech Mahindra on Tuesday became the third entity to drop out of the payments bank race, saying business profitability would take longer time due to "aggressive posturing" by many deep-pocketed players.

Ahead of Tech Mahindra, Cholamandalam abandonned the plan to set up payments bank last month, and the Dilip Shanghvi-IDFC Bank-Telenor combine quit last Friday.

"Over a period of time, we have realised that the amount of aggression that has come into the marketplace only erodes the margins," Tech Mahindra managing director and chief executive C P Gurnani told reporters, after its board decided not to pursue the opportunity.

After the Reserve Bank had given in-principle approval for payments banks to Tech Mahindra and 10 others last August, it had said group company Mahindra Finance would be an equal partner in it.

Gurnani said profit margins were always supposed to be "razor thin" in the payments bank business, but the aggressive posturing by competition which has the who's who of the telecom world, including the Ambanis, the Birlas, Airtel and Vodafone, among others, only made it realise that "business profitability will take a much longer period".

Tech Mahindra becomes the third entity, after the Chennai-based Cholamandalam Group and Dilip Shanghvi (of Sun Pharma) - Telenor-IDFC Bank combine last week announced to withdraw its name from the race. These withdrawals come at a time when the RBI is in the process of giving out the final licences.

When asked if RBI conditions are onerous, its chief strategy officer Jagdish Mitra said the regulator cannot be blamed for pursuing the broader goal of financial inclusion.

But he was quick to add that "it has to make business sense because at the end of the day if it doesn't make business sense then the objective of financial inclusion is not met."

Mitra said they did a field surveys to gauge the sense of the market, after which it took decision. He said though there were no major investments from the group in the venture, it had spotted the top tier executives to drive the business.

The announcement comes a day after RBI deputy governor S S Mundra had expressed displeasure over licencees abandoning their plans to set up payments banks. "We would certainly feel little aggrieved because lot of efforts from the part of RBI go in processing these applications," Mundra has said.

The 11 in-principle licensees were selected after sifting through the proposals of nearly two dozen applicants.

The in-principle approval is valid for 18 months, during which time the applicants must comply with requirements under the guidelines and fulfil the other conditions as may be stipulated by the apex bank.

The payments bank will not be allowed to undertake lending services and non-resident Indians will not be allowed to open accounts.