Payment banks: Spreading financial inclusion to rural India

Financial inclusion is a pressing concern for India, and regulatory reform by the Reserve Bank of India (RBI) has permitted new entrants to set up payment banks. This case study assesses why financial inclusion is significant, and whether the reforms will succeed. It also looks at the success of mobile banking in Sub-Saharan Africa, and whether India has any lessons to learn from this development.

Scope

Assessing financial inclusion, and how it can help to alleviate poverty in developing countries.

Analysis of why the Indian banking system has so far failed to promote financial inclusion in one of the world's largest economies.

Highlighting where payment banks have so far been successful and evaluating whether this can be replicated in India.

Reasons to buy

Why does only half of India have access to a bank account?

How successful has mobile banking been in Africa?

Will payment banks work in India?

Companies mentioned

None

Table of Contents

OVERVIEW

Catalyst

Summary

FINANCIAL INCLUSION IS A PRIORITY FOR INDIA

Financial inclusion is essential to reducing poverty

How financial inclusion benefits an economy

India’s financial system is dominated by the public sector

India's strong growth but lackluster presence in the region

Bank accounts are less prominent in rural areas and among poorer citizens

India's banking sector is dominated by the public sector

Public sector exposure to corporate loans pushing up non-performing assets

Pradhan Mantri Jan Dhan Yojana further expanded public sector influence

Private sector banks smaller but much more able to grow

Credit growth suffers as public sector attempts a detox

Lowest growth in deposits and credit since 1997

Public banks' driving to improve balance sheets

The RBI has authorized licenses for "payment banks"

Payment banks will leverage telecoms infrastructure

AN ANALYSIS OF MOBILE PAYMENT BANKS

Mobile banking has been successful in other developing countries

The success of Vodafone's M-Pesa in Kenya

M-Pesa is a mobile money transfer system

M-Pesa benefitted from certain economic conditions

M-Pesa has since expanded elsewhere

Mobile banking is also impacting India's neighbors

The downsides of mobile payments- limited financial inclusion

PAYMENT BANKS IN INDIA

India would benefit from more efficient payments

Vodafone's pilot schemes for government transfers have proved successful

Regulation for mobile money is not as accommodating in India

The Indian telecoms market is more fragmented

Cautionary tales from Telenor Pakistan

There will be a reluctance to switch to digital in rural India

M-Pesa's previous struggles due to cultural resistance and regulatory restraint

India's conglomerates have the scale to succeed

Other license winners have strong foundations too

CONCLUSIONS

Payment banks may yet succeed in India

APPENDIX

Definitions

Sources

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