State Bank of India chairperson Arundhati Bhattacharya said neither small finance banks nor the payments banks have a viable business model to be competitive, while admitting that technology proves the right course to achieve economies of scale.
"Neither the payments banks nor small finance banks seem to have as yet devised a business model that can be said as viable," she said while addressing a banking seminar organised by IMC. "It is hard to see payment banks taking away customers or income from commercial banks in a big way. Similar arguments hold for small finance banks," she added.
More than the viability of the new emerging model, the SBI chief is more perturbed by the technology usage by small finance banks to penetrate the rual and unreached segments of society, especially the bottom of pyramid. "There are some legitimate concerns whether banks, particularly public sector banks, will survive this onslaught."
While SBI, which is in storm for lending hugely to the likes of Vijay Mallya for his Kingfisher venture, is terming the RBI move to allow new 10 payments banks and 11 small finance banks this fiscal. Earlier, she described the competition in banking from new players as a "dog eat dog" scenario. Despite her remarks, SBI is one bank which rushed in to get Rs.30 crore stake in the proposed payments bank of Reliance Industries, who secured a licence to operate one recently.
However, she admitted that mobiles offer the cheapest mode of banking, the transaction cost may come down to about 2 per cent of the bank branching cost, 10% of ATM-based transaction and 50% of the Internet banking cost. "Digital banking can also increase productivity of back office operations and generate income on a wide range of payments," she added.
The share of top five banks in the banking segement has fallen from 46% in 1998 to 39.5% now and the new players will only increase competition, said Ms. Bhattacharya bringing in the plight of cooperative, local area and regional rural banks, which failed mainly because of no RBI supervision.
In fact, small finance banks under RBI supervision have ventured into IPO mode and Equitas has raised a whopping Rs.2,300 crore last week, while Ujjivan is venturing into the IPO frey soon.