Remedies to Challenges Facing by Commercial Banks with Payments banks

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2 Airo International Research Journal February, 2017 Volume IX, ISSN: Remedies to Challenges Facing by Commercial Banks with Payments banks Mr. S Tulasi Ram 1 Assistant Professor, School of Management Studies, Chaitanya Bharathi Institute of Technology, Gandipet, Hyderabad tulasiram.mba2010@gmail.com, Abstract Based on Nachiket Mor committee recommendations regulator in Banking sector approved licenses to establish Payments banks in India. As soon as RBI announced guidelines eleven companies from different sectors were applied for license. As of now Airtel, Paytm and India Post got their license to start operations. Being a first mover advantage Airtel getting good response in the market by its existing customers by offers and discounts on various payments. Traditional banking system contains Public and Private Sectorial banks have been effecting by payments banks entry particularly to their Current and Savings Account (CASA). This Proposed research paper list out the Challenges faced by traditional banks with Payments banks and gives few suggestions to them. Key words: Banks, Payments bank, CASA deposits, SWOT analysis JEL Classification:E21, G21, G23, G28. 1 Assistant Professor, School of Management Studies, Chaitanya Bharathi Institute of Technology, Gandipet, Hyderabad tulasiram.mba2010@gmail.com, Contact: Contact:

3 Airo International Research Journal February, 2017 Volume IX, ISSN: Introduction: Indian banking system has been witnessed for major changes right from Nationalization to till Payments banks. The major steps involved in this process are Nationalization of Banks, Regional Rural Banks, Computerization, Private Banks, Core Banking, Debit/Credit cards, Internet Banking, Mobile Banking and licensing Payments Bank. Reserve bank of India forms various committees and takes timely decisions on the reports payments banks is an example for that. Nachiket Mor Committee cited M-Pesa- Kenya payment bank in their report for Payments bank. Current and Savings Account (CASA) contains Demand Unified Payment Interface(UPI), Bio Metrics, Peer to Peer Lending, Bit Coin (Virtual currency)by taking all banks initiatives. Nidhi Chandrana (2016) has given information about M-pesa (Kenya), Payments banks concept and need of payments bank as part of Digital India. Daljeet S Kohli and Kushal Patel(2016) an independent research agency done there in depth analysis on Changing Indian Payments Landscape by Payments Banks, Futures of Mobile wallet and Deposits and Savings Bank Deposits. Every public bank having a quantifiable amount of CASA deposits in their total deposits and they pay less interest rate for these deposits. Newly started Airtel bank woes with offers and higher interest rates, PayTm bank will also in this way. Those will effects existing public sector banks to transfer their money in excess to minimum balances in case of savings bank account, particularly CASA deposits. Review of Literature Asish Desai (2016) in his book India s Top banks discussed about digital banking for transformation and customers preferences through FinTech E/M-wallet, Future Universal Banking and National Payments Corporation. Varun Kesavan (2015) discussed diversification of banks to the era of payments bank. Anusha Goel (2015) has listed out the eligible promoters, scope of activities, deployment of funds, capital requirements, promoter s contribution, foreign shareholding, current scenario in payments bank and hurdles for payments bank.

4 Srinivasan and Subramanian (2015) stressed concept of payments bank by raised and given answers to various questions for better understand of a common man, shown the payments bank in financial inclusion perspective and finally said it will create competition with existing banks specially in deposits mobilization. Need and Importance of Study The above researches were focused adoption of payments banks from M- Pesa, digital banking transformation, changing Indian payments landscape, era of payments banks, activities licensing norms, current scenario, hurdles for payments bank and competition with existing banks only.in other research India s top banks for Indian banks rankings and detailed report prepared based data provided by banks in their respective websites. However, no one has done their research or expressed their opinion about the Impact on Current and Savings bank deposits with payments bank. Statement of the Problem Newly started payments banks have their plans to capture the niche market. Bharthi Airtel with Kotak Mahindra Bank joint venture Airtel Payments Bank as a first mover in the market pours with number of offers to their customers. Bharthi Airtel network has 25, 12, 37,263 subscribers (trak.in) and Telecom Regulatory Authority of India disclosed that the number of mobile internet users has increased to crores. Paytm and India post on the way to capture the market. After demonetization people usage of Debit/Credit cards were also increased. Airtel payments bank offered 7.25pecent rate of interest to the deposits of its customers. Traditionally people are getting only 4-6 percent rate of interest on their savings bank accounts. For payments they use Debit/Credit cards. Now payments banks are offering more means people will transfer their money from their Current and Savings bank deposits to Payments Bank account which is a challenge to all banks particularly for public sector banks. Banks need to take some Remedies to these challenges faced by commercial banks with Payments banks. Objectives To list out existing CASA deposits in various public sector banks.

5 To identify the impact of payments banks deposits on Current and Savings Accounts deposits. To analyzeof payments bank and public sector banks through SWOT/SWOC. Hypothesis Deposit statistics in payments bank are not available. Hypothesis is not applicable. Research Methodology This research is an exploratory research and conclusive research. Payments bank statistics not yet disclosed that s why no statistical tools taken up for test. Theoretical framework/discussion constructed for analysis. Data collected through Primary and Secondary sources. Primary data collected through interactions with public sector banks staff right from office assistant to higher officials AGM s and GM s, for that I visited many bank branches and Local head offices in Hyderabad city. Secondary data were collected through books, journals (national and international) and websites of TRAI, Airtel, e-newspapers and World Bank. Results and Discussions Name of The Bank Deposits in mn CASA Ratio in % State Bank of India 17,307, Punjab National Bank Bank of Baroda Canara bank Bank of India Union bank of India IDBI ltd Central Bank of India Indian Overseas bank Syndicate bank

6 Oriental bank of commerce Corporation bank Allahabad Bank Uco Bank Andhra Bank Indian Bank State bank of NA Hyderabad Bank of Maharastra Vijaya Bank State bank of Patiala NA United bank of India Dena Bank State bank of Travencore State bank of Bikaner&Jaipur Punjab and Sind Bank State bank of Mysore

7 Bharatiya Mahila Bank limited Source: Dun& Bradstreet top Indian banks CASA ratio= Demand deposits+ Savings bank deposits / total deposits. In the above table all public sector banks having their good hold of CASA deposits. Interest Rates offered by Public Sector banks may lay between 3 to 4 percent for Normal savings bank account, 4-6 percent for flexi deposit/ super savings schemes, for recurring and term deposits they offers 6-9 percent depends on banks. It means for CASA deposits most of them offers up to 4 percent only in public sector banks. Growth of Mobile Banking Mobile Banking Volume- Growth Value-Growth Growth Public Private Foreign Total Source: RBI docs/ Compiled by Dun& Bradsteet for Top Indian Banks With the above data we can say that there is an increase in mobile banking usage. SWOT (SWOC) analysis of Payments Banks Strength Innovative Business Model National Wide Coverage Extensive Customer Base 24/7 Banking and Anywhere Banking Low Customer Service and Weakness Poor network/ Internet Connections Awareness levels very low on technology Margins are very less. Limited Product Range

8 Acquisition Cost Part of Financial Inclusion Opportunity Huge Advertising required Potential in market expansion in rural and urban areas. Innovations required delivering widest product range according to customer need. SWOT/SWOC analysisof Public Sector Banks Strength Widest network of customers in Urban and Rural areas Rapid increase in Internet and Mobile banking users. Rural people believeon public sector banks. Super savings account/flexi deposit schemes Opportunity Number of Internet and Mobile banking users increasing Rural area people are still slow in adopting payments bank Introduce new flexi deposit schemes for moderate interest rates on CASA deposits Training the employees on schemes Adoption of technology. Security Issues involved Competitors Challenge/Threat High competition with competitors for lower profits Cash accepted/ addicted people Lower Technical Literacy Gaining Customer Loyalty Regulatory Restrictions Weakness Providing Debit/Credit cards with latest technology worthy Lacking of training on schemes to employees Slow learners Challenge/Threat Sophisticated products offered by payments banks Time taking decisions

9 Joint ventures or Memorandum of Understanding with payments banks. Findings For CASA Deposits public sector banks pays 4 percent interest maximum but for them payments banks are offering at 7.25 percent. It is observed that many bank employees not aware of their own schemes like flexi/super savings accounts. Banks are charging on Debit/Credit card transactions which lead to opt for other payments option. Recommendations/Suggestions It is better to train all levels of employees in public sector banks about their various deposit schemes linked with savings bank account(like super savings account/ flexi deposits). Minimum Account Balance (MAB) should be reduced and normal minimum account balance will be limit. Above to this for every 500 they have to pay above normal interest rates. Debit/ Credit Cards charges are also high for few banks. Try to reduce operational expenses and transfer the same to customers. Utilizing the rural market by the way of better communication of deposits schemes. Joint venture in SBI way is also one of the best ways to compete. Conclusion Payments banks are emerging in the field of banking and it provides opportunity to tap the customers in urban and rural areas. However, rural people are slow in adoption of payments banks. Urban people are paying their utility bills through payments banks or mobile wallets have been increasing. Even the higher interest rate offered by the payments bank also one factor for reducing CASA deposits in public sector banks. So public sector banks should take timely steps to avoid or reduce the impact on CASA deposits. Limitations

10 This research had taken current and savings account deposits of Public sector banks only. Geographical area was restricted to Hyderabad only. This research paper is purely an opinion of what will be likely to happen on CASA deposits in public sector banks with payments bank entry. Scope for Further Research This paper taken data of CASA deposits of public sector banks only, further there is a scope by taking private banks CASA deposits. A comparative study may do after the results (financial results) announced by payments banks. References: 1. Dun& Bradstreet, (2016), India s Top Banks 2016 Dun Bradstreet 10 th edition ISBN retrieved from ks2016/indiastopbanks2016.pdf. 2. Nidhi Chandarana (2016), Payments Bank- A need of Digital India, Abhinav Natioanal Monthly Refereed Journal of research in Commerce & Management, Volume 4, Issue 11, pp Daljeet S Kohli and Koushal Patel (2016) Payments Banks- Changing Indian Landscape Pp Srinivasan, Subramanian (2015), Payments banks in India- Demystified, SSRG-IJEMS volume 2, issue 6 pp Anusha Goel (2015), Payments bank: A new landscape for Indian banking sector, IJRCM, Volume 4, Issue no 5, pp Varun Kesavan (2015) discussed diversification of banks to the era of payments bank., IJWR Vol 1, Issue XX, Pp s/all-you-need-to-know-about-paymentbanks/article ece (Accessed on 3/01/2017) om/definition/payments-banks (Accessed on 5/01/2017) (Accessed on 15/01/2017) /GPSS-UFA-Note- October2016.pdf (Accessed on 12/02/2017) (Accessed on 03/01/2017 and 09/02/2017).