Several sectors which banks are mandated to participate in do not turn out to be profitable, Axis Bank’s managing director and chief executive officer Amitabh Chaudhry said, adding that the private lender spends Rs 900 crore every buying priority sector lending certificates to meet its targets.
According to Reserve Bank of India norms, 40 per cent of banks’ adjusted net credit must be extended to the priority sector, which includes agriculture and micro, small and medium enterprises.
“They do ask banks to do a lot of the things which 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 at the Global Fintech Fest.
“We have a 40 per cent PSL requirement, which has 15 subsections. A lot of those areas don’t make money. In the case of Axis Bank, we spent RS 900 crore just buying PSL certificates every year just to meet our PSK lending requirements. It’s not a small sum of money,” he said.
Saying that the government has taken out “the entire profit and loss opportunity” from the payments business, Chaudhry said “you cannot make money in payments”.
“You have to use payments as a platform to make money somewhere else. The worry is that more and more of these will emerge, which will take away revenue and profitability pools and you have to then find the property from somewhere else. Have the property pool start shrinking, then my worry is that only the big can survive. Small will struggle,” he said.
Recently the Reserve Bank of India (RBI) came out with a discussion paper on charges in payment systems, wherein it asked if transactions can be charged. It also sought feedback from stakeholders on the possibility of imposing a “tiered” charge on payments made through the UPI, based on different amount bands.
The finance minister the very next day denied the possibility of levying charges on transactions done through UPI saying it is a digital public good with immense convenience for the public and productivity gains for the economy.
Currently all UPI transactions are free but banks and payment firms incur cost on each transaction. The government provides financial support for the digital payment ecosystem to compensate for the cost they incur for keeping UPI free. In the financial year 2021-22, the Centre had allocated Rs 1,500 crore for “promotion of digital payments” that is used to reimburse the merchant discount rate (MDR) for RuPay debit card transactions, and BHIM-UPI transactions up to Rs 2,000. For FY23, the Centre has set aside Rs 200 crore for promotion of digital payments in the Budget.
Responding to a question on whether banks will be interested in the cryptocurrencies sector, Chaudhry said, the regulator has made its disapproval of the cryptocurrencies sector very clear by flagging risk of financial instability.
“The banks are very cautious in terms of touching that (cryptocurrencies) sector because 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,” Chaudhry said.