Even as it sees strong growth momentum in its financial services business than other segments, Murugappa Group has decided to drop its plan on setting up payments bank due to unviable business model.

The Chennai-based Murugappa Group’s finance services firm Cholamandalam Investment and Finance Company had, in March this year, announced its decision to call off plans for establishing payments bank, for which it was given RBI approval in August 2015.

The company’s decision comes on the back of shift in business platform for payments bank and it is gathered that payments bank would be an attractive opportunity more for telecom players, e-commerce firms or banks than others. “The payments bank platform changed very fast and we realised that we would have to burn a huge amount of capital to stay in this business. Also, we have to ultimately see whether our value proposition is as attractive as the competition in this market,” said A Vellayan, Executive Chairman, Murugappa Group.

“Typically, I reckon that companies that are going into this will be only telecom companies or banks who want to retain their customers,” he added. He also said that they could not completely evaluate the opportunities as they had to submit their applications for licence within 45 days.

Explaining the decision further, N Srinivasan, Director, Finance, Murugappa Group, said: “When we applied for licence, the entire theme was completely different. But the scenario changed thereafter. Originally, the RBI’s initial guidelines indicated that the reason for introducing payments bank will be more for financial inclusion and for eliminating transaction costs to facilitate payments.

“However, we found that with the entry of Paytm it was no more a financial inclusion model and would be suitable for e-commerce firms and telecom firms. We also found that payments bank business required huge capital and long gestation period. And one must stay in the business for at least five-six years and be prepared to fund the losses. So the model was not working out well for us to be in,” he added

Vellayan said that the company had consultations and discussion with the RBI. It decided to abandon the plans on a mutual consent.

Meanwhile, Murugappa Group’s financial services business registered strong growth in 2015-16 and the group is confident of sustaining or achieving more growth this fiscal.

Cholamandalam Investment and Finance Company eyes 20 per cent grow this fiscal, supported by strong momentum in commercial vehicle sector and improvements in home equity segment. In 2015-16, it achieved record profits and healthy balance sheets.

The Group’s insurance entity also expects to sustain strong double digit growth this fiscal too, in view of momentum in health insurance sector, strong thrust by the Centre for insurance penetration and protection.

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