Airtel Payments Bank- a joint venture between Bharti Airtel and Kotak Mahindra Bank offers you an interest rate of 7.25 per cent on their savings account. The rate looks very attractive when one compares it with 4-6 per cent offered by commercial banks. In such a scenario should you open an account with the payments bank to earn high returns? What if you are already have a bank account? Does it makes sense to go for the second or third account? Well, there are few factors to consider before you make the final decision.
First, the rate of 7.25 by Airtel is just a welcome offer to bring more and more customers in its fold. Don't expect it to hold on to these rates for very long considering that interest rates are on downward trajectory. Currently, on an average the 10-year benchmark bond yield is ranging around 6-7 per cent, which means the rates offered by the payments banks needs to be lowered to earn a margin as they are not allowed to lend. According to the RBI guidelines, payments bank have to deposit 75 per cent of their money in Statutory Liquidity Ratio(SLR) eligible government securities, with maturity up to one year and hold maximum 25 per cent in fixed deposits with other scheduled commercial banks for operational purposes and liquidity management.
How does Airtel manage to pay such high interest rate? Well, for the time being Airtel is subsidising the difference from its own pocket to attract more people for opening an account. Once it reaches the critical mass expect a decline in interest rates by the payments bank. There is a target within Airtel to convert at least 100 million of their 270 million customers with Airtel payments bank accounts.
Second, it is not free of cost to withdraw and transfer money from the payments bank. For withdrawal of less than Rs 4000 the Airtel Payments Bank charges you in the range of Rs 5 to Rs 25. For the amount above Rs4000 you are charged at 0.65 per cent of the withdrawal amount, which means higher the amount the higher will be the charges. Similarly there are charges ranging from 0.5-1 per cent of amount transferred from the payments bank to another bank. Compared with commercial banks, it is bit costly as NEFT allows you to transfer money at just Rs 2.5 . Similarly, there is no fees in for transferring money through UPI.
However, there are no charges on transfer of money from the payment bank to the payment bank through internet and USSD. Also, there is no fees for transfer of funds from Airtel Payments Bank to another bank for transactions of less than Rs 1000. So, if you do not have to make large transactions (You can maximum deposit upto Rs1 lakh in the payments bank) it might not cost you much to transfer and withdraw money.
Third, if you are already having a wallet don't worry as it will eventually get merged with the payments bank. Moreover, whatever discounts and offers you offered with wallets will continue to be offered under the bank.
The Reserve Bank of India main objective behind payments banks is to achieve financial inclusion of millions of people, particularly in the remote areas of the country. It is to serve the need of transaction and savings account in rural areas. But with transfer and withdrawing charges so high, it might not attain the desired purpose. In 2015, the Reserve Bank of India gave approval to 11 applicants including Paytm to set up these banks. Soon Paytm is expected to come out with its payments bank. Reach of Payments banks is sure going to be more than the number of bank branches in the country but unsustainable rates and high cost of transaction should not be deterrent in its expansion.