Bombay : State Bank of India (SBI) is likely to reconsider its pursuit as a Jio Payments Bank joint venture partner with Reliance Industries Ltd if the payment bank fails to develop a business plan to start operations in its own right, a responsible person aware of the matter mentioned.
Indecision in developing a business model delayed the official launch of the payment bank by more than four years. The bank was set up as a joint venture between SBI and Reliance Industries in April 2018, and their five-year deal ends early next year.
“Reliance is an important business partner. They told us that they would present a strategy by September. We’ll take a call after that. We would like it to be a mutually agreed decision to part ways if that happens,” the above-quoted official, an SBI banker, said on condition of anonymity.
The partnership between SBI and Reliance Industries was expected to eclipse other payment companies. RIL needed to leverage Jio’s pan-India telecom network and Reliance Retail’s online and offline reach for its payment banking. SBI, on the other hand, was to bring its expertise in product structuring and a mass distribution network, helping the payment bank to get more business.
“But Jio Payments Bank took no initiative in acquiring merchants or customers. The bank played a minor role in their larger scheme of things. SBI was just an investment partner,” said said a former SBI official on condition of anonymity.
SBI said he was infusing ₹9.48 crore in the payments bank in its notes to the accounts accompanying the March quarter results. The country’s largest lender owns 30% of Jio Payments Bank, with Reliance holding the rest. According to the person quoted earlier, the latest capital injection is part of the original deal.
In a report accompanying FY21 results, Jio Payments Bank said it opened current accounts jointly with Reliance Retail under the JioMart merchant integration program. The bank offers features such as instant account opening, settlements and real-time payments for point-of-sale transactions.
“The idea behind the payment bank was to integrate with the Jio ecosystem. That’s why their branches were located next to the Jio stores. But the bank didn’t integrate very well. So, we asked to formulate a model,” the person said.
Emails sent to SBI and Jio Payments Bank went unanswered.
In FY21, Jio Payments Bank reported a loss of ₹89.7 crores on a turnover of ₹13.39 crores. The previous year, it had recorded a profit of ₹50.36 lakh on an income of ₹19.39 crores.
In FY21, Jio Payments Bank was fined ₹1 crore by the Reserve Bank of India for delay in applying for renewal of its Managing Director and Managing Director.
Last year, H. Srikrishnan, then managing director, “offered again”, but then resigned. The payment bank’s board then named Vinod Easwaran, a senior Reliance Industries executive, as its new CEO on Nov. 18.
The payment banking model faces several hurdles and has not taken off as expected by the central bank when the guidelines were issued in 2014. “Customers are no longer willing to pay fees on payment transactions because d other options are available. So payment banks have to look at volumes to make money. But not all payment banks can contemplate volume-driven growth,” said R. Gandhi, former deputy governor of the Reserve Bank of India.
RBI enabled Payment Banks to convert to Small Financial Banks (SFBs) after five years of operation. Existing banks like Paytm Payments Bank and Fino Payments Bank have already applied for a small financial bank license. However, companies like Airtel Payments Bank and Jio Payments Bank will not be allowed to apply for an SFB license as RBI rules prohibit large corporations from owning commercial banks.
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