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Airtel payment bank 7.5% interest rate…Sustainable?

Recently Airtel payment bank went live with 7.5% savings a/c interest rate. It is still a limited launch but question is whether such an interest rate is sustainable.

Those who are not aware of the payment bank model may compare this with KMB or Yes bank and may think whats so specific about Airtel payment bank.

The challenge is that a payment bank, as per RBI regulation, is not allowed to have a credit/ loan portfolio and has severe restrictions on potential investments for the liability fund, thus raised from deposits. Hence ideally it would be very difficult to breakeven in NIM even at 4-5%. Other way out is to cross subsidize the NIM loss from income from fees etc from payment transactions. But that will be a big drain on their P&L.

So more plausibly, Airtel payment bank is leveraging this as an incentive to grow a significant customer base in its early days. Future may see a tapering down of this rate to a more reasonable level.

For all purpose, this potential NIM loss can be considered as a cost of acquistion or marketing expense. On a lighter note, should Airtel payment bank show this NIM loss under Income in P&L or should it show the same as ‘Marketing expense’ under Operating expense bucket? 🙂

Will be interesting to watch out for acquisition initiatives from the other payments bank, expected to go live over next few months.

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