As per a recently released ICRA report, the transaction volumes for payment banks (PBs) have displayed a robust growth with compounded annual growth rate (CAGR) of 60% over the last four years. With the increasing transaction volumes, PBs have reached/are nearing their breakeven points. However, pressure on yield/margin remains with increasing competition. ICRA expects healthy growth in volumes to continue and the profitability of PBs to improve further.
Commenting on the current trends in transaction volumes, Mr. Sachin Sachdeva, Vice President & Sector Head, Financial Sector Ratings said, "PBs have witnessed healthy growth in their transaction volumes in the last few years, which has led to an improvement in their operating efficiencies and consequently the industry turned profitable in FY2022. ICRA expects, there is still a significant scope for PBs to increase their outreach and transaction volumes, and with increasing online and mobile transactions the growth trajectory displayed by them in the recent past is expected to continue. This would help the industry witness further improvement in its profitability as the fee earned on these transaction volumes and other services form majority of PB's revenue."
The average monthly transactions in the overall banking sector increased to Rs. 310 trillion in H1 FY2023 (Rs. 273 trillion in FY2022) from Rs. 266 trillion in FY2019. Correspondingly, having witnessed strong growth in transactions volumes, PB's share in the overall banking transaction volumes has increased to around 0.6% in September 2022 from around 0.2% in March 2020. Further, PBs are consistently improving their infrastructure by adding more micro-ATMs to increase their outreach and transaction volumes.
"However, PBs' profitability not only remains prone to competition from other market players operating in a similar domain, but also to changes in the product mix. An increase in the share of low-yielding products with the same level of indirect costs could adversely affect PBs' profitability. Further, PBs are also prone to operational risks, which include cash mismanagement and fraud, given the high cash handling activities and external merchant/agent driven business model." Mr. Sachdeva continued.
The financial inclusion in India has been improving year-on-year (YoY), as evidenced by the Reserve Bank of India's (RBI's) Financial Inclusion Index, which stood at 56.4 in March 2022 compared to 53.9 in March 2021 and PBs have been aiding in the same. PB licensing was done to further financial inclusion by providing small savings accounts and by enabling high volume-low value transactions in deposits and payment/remittance services in a secured technology-driven environment for the low-income groups. These include migrant labour workforce, low-income households, small businesses, other unorganised sector entities and other users.
PBs are relatively new in the banking space compared to traditional banks, which have decades of experience. Further, the scope of activities for PBs is limited, whereas traditional banks have more scope for diversification in their area of operations and revenue streams. |
