Payment banks to free Rs 14 trillion in a year for infrastructure

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The payment banks can free up an enormous amount of Rs 14 trillion in incremental credit on an annual basis. This amount will be used for the infrastructure sector that has been looking for funds, states a SBI Research report.

As per the report, besides helping banks and other such facilities, it is predicted that an incremental amount of Rs 14 trillion on a minimum will be freed up per annum. As these banks can invest only in the G-secs, this amount will be given to the infrastructure sector.

The report clearly states how they arrived at this amount of Rs 14 trillion of funds for the investment purpose. It is stated that people hold around 13 percent of the cash for the day to day transactions. If the cash with public access drops by 1 percent, it will augment the banks’ deposit to around Rs 15 trillion. Through the multiplier outcomes, 75 percent of the banks’ deposit loan contributes to an additional Rs 11.25 trillion.

The report states that there is a massive chance for the banks to release their retail business potential. On August 19, RBI granted in-principle support to 11 units from 44 applicants in order to set up the payment banks. Some entities that got the license are the Birlas, the Mahindras, Reliance Industries, Vodafone and Bharti Airtel.

Even a small bank has an outstanding deposit of Rs 1 trillion approximately. For instance, consider that the payment banks mobilize one fourth of these deposits annually. Assume that 25 percent of penetration is practical given that the Jan Dhan mobilization is Rs 22 crore till now. Then, 11 payment banks will mobilize around Rs 2.75 trillion a year.

The value of the coins and banknotes in circulation as a percent of GDP at 12 percent is too high in India in comparison to the other emerging countries. As a larger section of the population does not have access to the formal payment solutions, the most preferred mode of payment is cash.

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