Days after the financial services secretary pointed out the muted contribution by private banks towards financial inclusion, Axis Bank chief Amitabh Chaudhry said that several priority sectors that banks are required to lend to are not profitable.

“We have a 40 per cent PSL requirement, which has 15 sub sections. A lot of those areas don’t make money,” Chaudhry said at the Global Fintech Fest on Wednesday.

“In the case of Axis Bank, we are spending ₹900 crore just buying PSL certificates every year just to meet our priority sector lending requirements. It’s not a small sum of money,” he added.

Banks are mandated to lend 40 per cent of their adjusted net credit to the priority sectors such as agriculture and allied services, low-cost housing, micro, small and medium enterprises, and social infrastructure.

Financial services secretary Sanjay Malhotra, had at the Indian Banks Association’s annual general meeting on Friday, said that private sector banks account for only 3 per cent of Jan Dhan Yojana accounts, 4 per cent of Jeevan Jyoti Bima Yojana and Suraksha Bima Yojana, and 7 per cent each of Atal Pension Yojana and Kisan Credit Cards.

“They (regulator and government) do ask banks to do a lot of things that don’t make money for us, so they fully understand that they need to allow us to do something where we make money to fund a lot of areas where we don’t make money,” Chaudhry said.

Payments business

The Axis Bank chief said that banks cannot make money in payments because the government has excluded the “entire profit and loss opportunity” from the payments business.

“So if you look at payments in India, no one can make any money...you have to use payments as a platform to make money somewhere else. The worry is that more of these will emerge, which will take away revenue and profitability pools,”  Chaudhry said.

If this continues and the “property pool” starts shrinking, then only the bigger players may be able to survive, as the smaller ones will struggle, he added.

The Reserve Bank of India has recently floated a discussion paper seeking industry feedback on whether payments system transactions, including UPI transactions, should be charged to support the network and the issuers of payments instruments.

Following that, however, the Finance Ministry clarified that the UPI network has been incorporated for convenience and productivity and is a “digital public good,” adding that it has no plans to levy any charges on UPI transactions.

While most modes of digital retail payments attract a charge, the government has mandated a ‘zero-charge framework’ for UPI effective January 2020. However, banks and payment firms incur a cost for each transaction.

Cryptocurrencies

Chaudhry said that banks are cautious about venturing into the crypto currency space as the regulator has communicated its disapproval of the sector, citing financial instability risks.

“The message from the regulator is beware and be aware that we do not like it. The regulator’s view is very firm that we do not like this,” he said.

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