Aditya Birla Group plans to sell 15-20% Stake in Idea Payments Bank

The Aditya Birla Group is planning to raise about Rs 200 crore, seeking a valuation of Rs 1,000 crore for the two-month-old venture, by selling a minority stake of over 15% and 20% in its Idea Payments Bank, two people with direct knowledge of the plan said.

The payments bank, in which group companies Idea Cellular and Aditya Birla Nuvo own 51% and 49%, respectively, will use the money to expand its Operations. India’s second-largest mobile phone-owned payments bank has been facing headwinds in setting up and launching operations.

“While the concept of small finance banks has taken off fairly well, the payments bank ecosystem is still reeling under cost pressures,’’ said an executive from the industry.

‘’There’s not much value in this business, and for Aditya Birla Idea Payments Bank, a clear-cut strategy on how they are likely to execute this model still eludes them.” When asked about the payments bank raising funds through equity dilution, an Aditya Birla spokeswoman said, “We do not comment on market stories.”

Idea's payments bank, which is the latest entrant in this space, started its operations in February after the Reserve Bank of India issued licenses to 12 firms in August 2015. Idea’s rival and market leader Bharti Airtel was the first telecom entity to begin payments bank operations in November 2016.

RBI has been pushing for the payments bank model by offering services such as small savings accounts, payment or remittance services to migrant labour workforce, low-income households, small businesses, unorganized sector entities as well as other users to push for further financial inclusion.

Unlike regular banks, payment banks cannot give loans, or issue credit cards, but can accept deposits up to Rs 1 lakh. Such entities primarily survive on fee income since 75% of their deposits have to be mandatorily invested in government bonds with a maturity of up to a year. These banks will have to offer aggressive rates to mobile deposits against competition from commercial banks.