It all started with a vision- one that of unleashing a digital revolution across India. The idea was to increase the penetration of financial services into places where actual banks failed to reach. And the concept, first put forward by the Nachiket Mor commission in 2014, was given the name, Payments Bank – a bank which isn’t actually a bank.
So what is a Payments Bank?
Payments bank is a registered public listed company that comes under the Companies Act, 2013. RBI has mandated that such banks have a minimum capital investment of ₹100 crore. For the first five years the stake of the promoter should be at least 40%, and 25% of its branches must be in unbanked rural areas.
A payments bank accepts deposits of up to ₹1, 00,000 and pays interest on them. The bank operates digitally and hence offers mobile payments and net banking services. It also issues debit and ATM cards. However, they are not allowed to carry out lending activities like granting loans, issuing credit cards etc. So they cannot earn from interests like the conventional banks.
Then the question comes – what is the source of their revenue?
One way is through investment. They invest in government securities and bonds fetching an annual return of about 7%. Payment banks provide the option of micro-saving, i.e. savings as low as ₹100, thus encouraging customers to deposit more.
Another major source of revenue can be data monetisation. It means generating economic benefits from the data available such as customer profiles, their interests and preferences, spend patterns etc…
They can earn interest by depositing in other banks or government deposits.
They are also involved in cross-selling to other financial institutions by providing them with insurance and loans.
So, is this a viable business model?
If we take a look at the existing payments banks in India, most of them are running a loss. But none of them expected a net profit before 5 years of operation. Airtel Payments Bank, the first payments bank in India reported a widening in the loss before tax in the financial year 2018-19, even though their total revenue increased. Paytm Payments bank launched in 2016 also has a similar performance graph. In 2017 came Fino Payments bank, with an aim to make profits within 3 years of operations. They are optimistic about doubling customer base and merchant points by December 2020.
It is too early to make speculations regarding the viability of this model since it is still at a very nascent stage. However, if the banks comes up with attractive financial offerings coupled with service quality and convenience, this model can succeed in achieving its objective, i.e. financial inclusion through digital disruption.
“RCEP will be the third largest jolt to the Indian Economy by PM Modi”
– Jairam Ramesh
There has been a lot of buzz recently from farmers and other business associations regarding RCEP that it would destroy them economically. Although it was Prime Minister Manmohan Singh who decided to negotiate RCEP way back in 2012, Congress now opposes the RCEP. Nevertheless, keeping aside political gains, let us dive deep into RCEP to understand the scenario.
Regional Comprehensive Economic Partnership (RCEP) is a proposed
free trade agreement between participating countries where they agree to reduce
or eliminate the tariffs levied by each country on imports and exports of goods
and services. There are 16 countries which are part of this agreement, 10
member states of ASEAN and 6 FTA partners namely China, Japan, South Korea,
Australia and New Zealand. Upon implementation, this will tend to create a new comprehensive
free trade area which is bigger than the European Union. This will help
countries embrace economic integration and provide a platform to gain access to
the global arena.
There are a number of multilateral trade agreements and FTAs
between various countries, but why is RCEP particularly gaining so much
importance. Let’s review some facts – the 16 Asia-Pacific (APAC) countries
together account for:
25% of global GDP
26% of Foreign Direct Investment flows
30% of global trade
45% of world population
Hence, this holds much significance in the global economic
context, especially, when the global balance is shifting towards the APAC
region. This deal will reinforce the leadership of the region in global trade. This
is the first-ever deal which will encompass China, India, South Korea and Japan
providing a commitment in WTO.
The negotiations formally began in 2012 and is nowhere close
to reaching a conclusion. This deal consists of 21 chapters of which only a few
have been concluded. With rising protectionism and uncertainty in the global
economic scenario owing to US-China Trade War & the Brexit cliff-hanger,
the negotiations are facing a lot of frictions. However, China is firm to reach
on a conclusion soon as it wants to present this as a response to the erstwhile
Trans-Pacific Partnership (now known as Comprehensive & Progressive
Agreement for Trans-Pacific Partnership), without the US being a part of it.
This deal will make China’s position formidable in the ongoing trade war as it
implicitly signifies the stance of the countries in it.
All the member nation representatives met on September 08th
this year in Bangkok to arrive at tangible conclusion in order to proceed with the
final ratification in the ASEAN summit this November. The meeting was delayed
for more than 5 hours and everyone was busy in persuading one nation: India.
India, a key player in the APAC region is sceptical with some of the terms of
the deal. On the other side, there are a lot of protests emerging from the
various domestic trade associations within the country. What is the
significance of this deal for India? Why is there such a huge negative
sentiment over this deal and what are the concerns of the Indian policymakers
with regards to this deal?
This deal has a potential impact on the Indian economy as
RCEP countries account for almost 27% of India’s total trade, about 20% of
total exports and 35% of total imports. Upon implementation of this deal, it
will open the Indian markets further by easing the tariff barriers and hence
making India more vulnerable to huge imports which will further put pressure on
the industries. The scepticism over the free trade agreement is not something
driven by fear but has a rationale behind it. India’s previous experience of
FTAs has been a sour one as it was always on the receiving end. Out of the 16
nations, India has trade deficit with 11 nations as of 2018-19. India already
has FTAs with ASEAN, Japan and South Korea and its trade deficit has widened
after signing these deals. India’s trade deficit with RCEP countries increased
from $5 billion in 2005 to $105 billion in 2018. Of this, China alone accounts
for $53 billion deficit, which is also under criticism due to the sudden jump
in imports from Hong Kong. A report by NITI Aayog published a couple of years
back noted that the utilisation rate of the FTAs by India is between 5% and
25%, one of the lowest in APAC region. The Asia Development Bank found that the
complex origin rule criteria, lack of information about FTAs, higher compliance
costs and administrative delays act as a hindrance for Indian exporters to
pursue the preferential routes.
India has offered to relax tariffs on 86% of goods traded
with ASEAN and upto 74% of goods traded with China, New Zealand &
Australia. This proposal was also rejected by the nations, which stated it as
“too little, too late”. India is also worried that the items on which duty cuts
have not been provided to China can also end up in India through different
routes. As a matter of fact, India has the lowest tariff barriers in the
proposed RCEP region while China has the highest. Based on these concerns,
India wants an ATSM (Auto trigger safety mechanism) provision, which will
automatically increase the levies and tariffs beyond a particular threshold.
India also wants the right to determine the differential pricing for specific
The Indian economic scenario is particularly gloomy right now,
as there is a risk of slowdown posed upon it. The unemployment rates are at
all-time high and the growth forecasts for India are continuously nosediving. The
banking and financial sector is already stressed with the looming liquidity
crisis and NPA problems. The Indian Automobile industry is also facing the heat
with sales volumes continuously falling in 2019. At this point, Indian
industries and workforce are not skilled and efficient enough to compete with
manufacturing powerhouses like China and Japan. This deal will further
deteriorate the situation as these countries will export more and more consumer
durables, electronics, agricultural and dairy products which will further
aggravate the situation of the farmer.
The cons of RCEP most certainly seem to outweigh the pros at this point of time, but the scenario could be completely different in the long run. While we know that India wants to become a $5 trillion economy by 2025, it would certainly not be possible without developing ties and gaining access to international markets. It is high time that our government starts looking inwards and focuses on the hindrances. When the global workforce is aging, India has tremendous opportunity in terms of its young population. This can be leveraged only when the human capital improves. In the recent WEF report, India slipped 10 places in the Global Competitiveness Index. This is worse than all BRICS nations except Brazil. The parameters should be analysed on where India fares badly. To gain and sustain high growth rates, technological adoption and skills play a key role. Indian economists and leaders should relentlessly work on these key issues as doing so would help in both the short term and the long term development of the country. This would certainly have the end result of helping India establish itself among other economies and make a mark on the world map.