Equitas-Google Pay Partnership For Deposits Fizzles Out As RBI Raises Questions

Why Equitas Small Finance Bank chose to drop its deposit partnership with Google Pay.

<div class="paragraphs"><p>Reserve Bank of India logo. (Photo:&nbsp;BQ Prime)</p></div>
Reserve Bank of India logo. (Photo: BQ Prime)

The tie-up between Equitas Small Finance Bank Ltd. and payments application Google Pay to garner retail deposits has been suspended less than a year after it was launched.

"There were some questions from the regulator, so we decided not to pursue it further," PN Vasudevan, MD and CEO of the bank, told BQ Prime in an interview.

The partnership, announced in September 2021, would have allowed Google Pay users to open a fixed deposit account with Equitas Small Finance Bank, without having to open a fresh bank account. These customers would earn interest based on the prevailing rates and, on maturity, the funds and the accumulated interest would be directly transferred to the user's source bank account.

At the time, questions had been raised about the nature of the partnership. Banks aren't allowed to employ direct sales agents to garner deposits and it was felt that the arrangement with Google Pay was essentially that of a sales agent. The Reserve Bank of India, it was reported, was looking into the partnership to asses if it would allow Google a backdoor entry into banking.

The RBI has been grappling with the increased involvement of big tech in domestic banking, even as a formal regulatory framework for such companies does not exist. "...the involvement of BigTechs in the BFSI segment also brings along the systemic risks," the RBI said in its latest annual report released last week.

Such involvement will "have implications for financial stability and it is the endeavour of the Reserve Bank to mitigate such risks through careful choice of technology and frameworks", it said. The regulator will explore a regulatory framework for digital banking, fintechs and BigTechs in FY23, it said.

While the Google Pay tie-up has fizzled out, Equitas Small Finance Bank has benefited from other digital banking initiatives it has taken, Vasudevan said. Through its tie-up with neobank Niyo, the bank has managed to open 13.8 lakh new liabilities accounts and has garnered current account savings account deposits worth Rs 343 crore, according to the bank's latest investor presentation. Other tie-ups with fintechs are also aiding the bank's deposit franchise, Vasudevan said.

Deposits garnered through digital means, however, still only account for around 6% of the bank's total CASA deposit base of Rs 9,855 crore as on March 31. Equitas Small Finance Bank's total deposit base stood at Rs 18,951 crore at the end of the last fiscal.

"We are expecting a 30% growth in our assets in FY23," Vasudevan said. "Currently not all our products are available at all our branches. This gives us room to grow, as we expand the product portfolio across the network."

As on March 31, the bank's total advances stood at Rs 20,597 crore, up 15% year-on-year. Small business loans are the single largest loan segment, contributing 46% of total advances. Unsecured microfinance loans form 19% of the advances.

On May 19, Equitas Small Finance Bank informed exchanges that the bank's board had agreed to accept Vasudevan's resignation as MD and CEO. Vasudevan had said in his resignation letter that he was stepping down to focus on a public charitable trust he opened with his wife.

Vasudevan has offered to stay on till the bank is able to find a successor and a transition is completed. Shares of Equitas Small Finance Bank have dropped 27% since news of his exit.

Was the timing of the exit announcement ill-timed?

"It does not matter when you announce these things. The stock is bound to react. India's private banking system has not seen a CEO voluntarily step down before his term ends," Vasudevan said.