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Taking A Dig At Paytm, HDFC Bank’s Aditya Puri Says No Money In Payments Business

Lending rates have room to fall further, Aditya Puri says.

The economic viability of the digital wallets business is doubtful, said Aditya Puri, the managing director and chief executive officer of HDFC Bank while speaking at the NASSCOM India Leadership Forum in Mumbai on Friday.

Questioning the business model of payment companies like Paytm, Puri said, they can’t replicate a foreign player like Alibaba because Indian regulations won’t allow it.

Aditya Puri, MD and CEO, HDFC BankThere is no money in the payments business. The current loss Paytm reported is Rs 1,651 crore. You can’t have a business that says ‘pay a Rs 500 bill and take Rs 250 cashback’. Come up with something else. If he wants to copy Alibaba, he can’t because the Indian regulators are better. 

Paytm had acquired 20 million new customers after the government’s decision to demonetise old Rs 500 and Rs 1,000 notes in November last year, the payments company told BloombergQuint in an interview on January 17.

HDFC Bank has its own person-to-merchant digital wallet 'PayZapp' which it had launched in early 2015.

Scope For Lower Lending Rates

The Reserve Bank of India's (RBI) decision to shift its monetary policy stance to neutral from accommodative in its last policy review will have only a limited bearing on the lending rates, and there is still room for further cuts, Puri said on the sidelines of the NASSCOM event.

In its last monetary policy review for the current financial year, the RBI decided to shift its monetary policy stance to neutral, indicating that there would be limited room for further easing of policy rates, which have been reduced by 175 basis points since January 2015.

"Of course! It depends on inflation and liquidity," said Puri when asked whether banks could still reduce lending rates.

Aditya Puri, MD and CEO, HDFC BankThe Indian banking system only borrows 3 percent from the market, 97 percent is deposits. When you have surplus liquidity, whether somebody (RBI) cuts rates or not, the banks will cut rates themselves.

The demonetisation of Rs 500 and Rs 1,000 notes by the government in November last year led to a sharp increase in banks' savings and current account deposits. As a result of the surplus liquidity, banks sharply reduced their marginal cost of funds lending rate (MCLR) in January. HDFC Bank itself cut its benchmark lending rate by 75 basis points last month to 8.15 percent. Market leader State Bank of India, and the largest private bank ICICI Bank had cut their benchmark rates to 8 percent and 8.20 percent respectively.

"If I don’t reduce my deposit rates, I cannot cut rates. The MCLR is calculated on the basis of the cut in my deposit rates. (If deposits are cut) I am obligated to cut my lending rates," said Puri, an indication that the bank could consider reducing its deposit rates.

Banks have reduced their bulk deposit rates and the rates on some tenors of deposits, but have steered clear of reducing the savings bank rate, which for many continues to remain at 4 percent. In an interaction with reporters last month, SBI Chairman Arundhati Bhattacharya said banks might choose to cut deposit rates to ensure that the sharp cuts in lending rates are not a temporary phenomenon.

Banks' lending rate decisions could depend on the amount of cash in the system, now that the curbs on withdrawal are being lifted. The larger banks expect 25 and 40 percent of their deposits to remain intact.