India Post Payments Bank (IPPB) likely broke even in FY23, in the fifth year of its operation, much ahead of its target to reach the level by FY25, its CEO J Venkatramu told FE, adding that the bank is now seeking permission from the Reserve Bank of India to extend small ticket loans.
IPPB was launched on September 1, 2018, with the intent to leverage the massive network of about 155,000 postal branches across the country to provide doorstep banking, especially in rural areas.
Upfront hiring of a large number of people for the payment bank business, investment in constantly changing technology and zero MDR regime on digital payments means it had to incur heavy losses in the first four years.
The loss was Rs 335 crore in FY21 before declining to Rs 169 crore in FY22. It was hoping to break even by FY25, like any other payments bank.
However aggressive business remodelling and tapping of new fee-based services helped to turn the tide early.
“Given the kind of cost structures we have, we predicted that once we touch a revenue of say, Rs 1,500 crore or Rs 2,000 crore is when we expected to break even by 2024-25.
“In fact, it was expected that the payments bank model takes seven years to break even. We are currently in the process of finalising the books for FY23 and expect to break even,” Venkatramu said.
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IPPB revenues have been growing over 100% in the past three years starting with Rs 54 crore in FY20, Rs 213 crore in FY21 and Rs 461 crore in FY22.
Revenues grew over 60% to around Rs 755 crore in FY23.
IPPB crossed Rs 6,300 crore in current and saving bank deposits as on March 31, 2023.
As payments banks are not allowed to lend, it deploys these funds in government securities and bank deposits with interest rate spreads of just 1-2 percentage points compared with 3-4 percentage points for traditional banks.
With limited scope to generate new streams of income, the payments bank has approached the RBI to permit it to extend small ticket loans ranging from as low as Rs 10,000 to Rs 5,00,000 by levering the massive postal network across the country, Venkatramu said.
“We are interested in getting into this space as there’s a huge demand from customers, especially for small-value loans.
“The demand is there for loans of less than Rs 30,000 and even as low as Rs 10,000. But, that space is still not well covered because of the very high cost of credit delivery,” he said.
The average ticket size of loans in the country is Rs 50,000.
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“Given the fact that we already have a presence across the country, the distribution and setup costs have already been there, for players like us, it makes sense to provide small value loans,” he said.
“Payments banks are permitted to take deposits up to Rs 200,000. Similarly, on loans also, RBI can have a limit of Rs 200,000-500,000. Otherwise, the sustainability of payment banks in the current model is a bit challenging.”
Payments banks, by design, have to rely more on fee-earning services. In fact, the entire payments bank business model was built on the premise of MDR (merchant discount rate) led earnings on digital transactions through Rupay debit card and UPI transactions.
However, the government waived the MDR charges to promote digital banking, leaving the payments bank business model disappointed.
Being in the government sector, IPPB revised business plans to grow business by tapping various agencies for last-mile delivery of services. It is a service provider to various government agencies for delivery of direct benefit transfer (DBT) benefits like PM-KISAN, MNREGA and various scholarships.
“We do doorstep delivery of banking services like food delivery services do for people. That’s one of our USPs. That’s the advantage of the postal department network, which we leverage,” Venkatramu said.
IPPB has also tied up with banks and insurance companies to sell their loan/insurance products. While the payment banking business generates 70% of its revenues, the balance 30% flows from other fee-based services.