State Bank of India’s (SBI) shareholding in Jio Payments Bank fell to 23% in FY23 from the 30% that it has maintained since inception, indicating its disinterest in the payments bank business model. The fall below 25% also means SBI will no longer be able to block special resolutions at its seven-year-old joint venture (JV).
India’s largest bank stayed away from two Jio Payments Bank rights issues, while its JV partner Reliance Industries (RIL) picked up 10 million shares on 29 November, and 70 million on 23 January, according to a directors’ note in the payment bank’s regulatory filing seen by Mint. In FY22, SBI had put in ₹9.48 crore into the JV.
“In terms of Section 114 of the Companies Act, 2013, a special resolution can be passed when at least 75% members of the company vote in favour of the resolution, which means that it can be blocked when members holding more than 25% plus one vote against the resolution,” said Rajiv Sharma, partner at law firm Singhania & Co.
Introduced during the tenure of former Reserve Bank of India (RBI) governor Raghuram Rajan, payments banks were expected to reach out to the under-banked and unbanked masses, accepting deposits of up to ₹2 lakh per customer. They, however, cannot lend.
In May 2022, Mint reported that SBI was likely to reconsider continuing as a partner in Jio Payments Bank if the payments bank fails to develop a business plan.
Emails sent to SBI and RIL remained unanswered.
Although the current dilution is passive in nature, the bank may even actively look at leaving the partnership. “The bank may eventually exit the JV, but that will depend on its conversation with Reliance Industries. That conversation has not happened,” a person aware of the development said on condition of anonymity.
The case for a commercial bank having interest in a payments bank is not strong enough, especially after the advent and spread of UPI, the person cited above said. “Payments have been simplified in the last few years and the bank has decided to not infuse any more capital into the venture,” the person said.
According to former RBI deputy governor R. Gandhi, the difficulty in making money on payments made it challenging for payments banks. “When the concept was thought of, these banks were expected to make money out of the payments they processed. In practice, they found out there were several restrictions on charging payments and it became difficult for the model to be successful,” Gandhi said.
At the end of FY23, RIL’s equity share capital in the payments bank stood at ₹264.5 crore, a change from ₹184.5 crore in FY22. In comparison, SBI’s capital in the venture remained unchanged at ₹79 crore.
In FY23, the payments bank reported a net loss of ₹44.5 crore, against a loss of ₹33.9 crore in the previous fiscal. As part of its business strategy, Jio Payments Bank has said it wants to “enhance customer engagement to promote transaction banking and increase average customer balances”. It wants to “leverage group synergies” to maximize distribution reach across “India and Bharat”, the directors’ report in Jio Payments Bank’s regulatory filing showed.
The payments bank also saw an expansion in its business correspondent outlets to 2,405 from just 421 in FY22.
Business correspondents act as representatives of banks, facilitating banking services at locations other than a bank branch and ATM. The board’s report said that while the number of savings accounts grew 171% year-on-year to 291,000, deposit balances grew 237% in FY23 to ₹11.4 crore. The payments bank also witnessed a 30% growth in UPI handles and 45% growth in UPI transaction volumes in 2022-23.
RIL was among 11 applicants that received RBI approval to set up payments banks in August 2015. The bank was set up in November 2016 in partnership with SBI, when Arundhati Bhattacharya helmed the state-run bank. Bhattacharya is now chairperson and chief executive of Salesforce India.